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Home > News and Publications > Quarterly Bulletin 2014 Q4

Quarterly Bulletin 2014 Q4

08 December 2014

Contents of Quarterly Bulletin 2014 Q4

Each article is available as a separate pdf file; click on the appropriate title to access the relevant file. Alternatively you may download the complete issue.

Complete issue (3.25MB)

Topical articles

By Emily Beau of the Bank’s Banking Policy Division, John Hill of the Major Banks and Insurers Sectoral Division, Tanveer Hussain of the Markets Directorate and Dan Nixon of the Bank’s Media and Publications Division.
A bank needs to finance its activities, and the cost of bank funding affects a wide range of economic variables with important implications for both monetary and financial stability. This article sets out what bank funding costs are in simple terms, using an analogy of two buckets on a pair of scales to help explain the dynamic nature of bank funding and bank lending. It also introduces a simple framework for analysing the main drivers of funding costs.
A short video discusses some of the key topics from this article.
By Oliver Bush of the Bank’s Macroprudential Strategy and Support Division, Samuel Knott of the Bank’s Stress Testing and Strategy Division and Chris Peacock of the Prudential Regulation Authority’s International Banks Supervision Directorate.
Over the past 40 years the size of the UK banking system has grown dramatically and under plausible assumptions it could continue to grow rapidly. This article examines a number of issues related to the size of the UK banking system, including why it is so big and what empirical evidence tells us about the relationship between banking system size and financial stability. This evidence suggests that while size can be important, it is the resilience of the banking system that is key for financial stability.
A short video discusses some of the key topics from this article.
By Tamarah Shakir of the Bank’s Macroprudential Strategy Division and Matthew Tong of the Bank’s Monetary Assessment and Strategy Division.
The Bank’s Financial Policy Committee (FPC) and Monetary Policy Committee (MPC) are separate committees, each with their own primary objectives, but with a common secondary objective. In addition, the policy actions of one committee can affect economic and financial variables of interest — and hence the policy stance — of the other. There are clear benefits from having two separate committees. But there is also considerable scope for, and benefits from, effective information sharing and dialogue between the FPC and MPC, and a shared understanding of each committee’s approach to policymaking.
By Andrew Gracie, Executive Director, Resolution, and Lucy Chennells and Mark Menary of the Bank’s Resolution Directorate.
The Bank of England has an objective to protect and enhance UK financial stability, as part of which firms must be able to fail without destabilising the rest of the financial system. Resolution is the process by which the UK financial authorities can intervene to manage the failure of a firm in an orderly way. The aim is to ensure continuity of the critical economic functions and services provided to customers, and that the costs of failure are borne by shareholders and unsecured creditors rather than taxpayers.
By Gareth Anderson of the Bank’s Monetary Assessment and Strategy Division, Philip Bunn and Alice Pugh of the Bank’s Structural Economic Analysis Division and Arzu Uluc of the Bank’s Macro Financial Risk Division.
This annual article on the latest survey of households carried out by NMG Consulting on behalf of the Bank focuses on the potential impact of higher interest rates. If interest rates were to rise by two percentage points, while over the same period incomes rose by 10%, then the proportion of households with a high mortgage debt servicing ratio would rise from 1.3% to 1.8%. However, this remains well below previous peaks for this metric. Overall, the evidence does not suggest that gradual increases in interest rates from their current historically low levels would have unusually large effects on household spending.

Recent economic and financial developments

International monetary policy diverged over the review period, with the Federal Reserve bringing an end to ‘tapering’, while the European Central Bank and the Bank of Japan both announced further loosening. Long-term interest rates declined somewhat, continuing the downward trend observed since the start of the year. Contacts attributed the fall to a combination of changes in both the expected path of policy and the level of long-run real rates, as well as reductions in term premia. Moves in exchange rates were broadly in line with developments in the outlook for the international economy and central bank policy. There was a modest pickup in volatility in the foreign exchange market. In October, worries about low growth contributed to a period of heightened volatility in a number of markets, with the turbulence thought to have been exacerbated by low market liquidity. Some risky asset prices fell during the episode but subsequently recovered much of the lost ground.

Summaries of speeches and working papers



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