The Financial Policy Committee (FPC) works to ensure the UK has a stable financial system. This means households and businesses can make payments, manage their savings, borrow money, and guard against risks.
A stable financial system can withstand shocks rather than amplify them. The FPC identifies vulnerabilities and acts to build the resilience of the system.
Recent weeks have seen several overseas banks fail or come under severe stress. Banks’ share prices fell across the world and investors became more cautious.
The FPC is monitoring these events and the potential impact on UK banks and financial stability. UK banks are resilient and are strong enough to support households and businesses.
The FPC is also continuing to help develop standards to limit vulnerabilities in non-bank sectors of the financial system.
Overseas bank failures have increased investor caution. We are monitoring these developments closely.
Recent weeks have seen several banks fail or come under severe stress. Silicon Valley Bank (SVB), the 16th largest US bank, failed on 11 March, triggered by a rapid increase in depositors withdrawing their money after the bank made significant losses. SVB had a subsidiary in the UK. The Bank of England took the decision to sell the UK bank on 13 March. Credit Suisse, a large international bank which had been in difficulty for some time, also became heavily distressed. UBS, another large Swiss-owned global bank, agreed to buy it.
Investors became more cautious. There was a sharp drop in the prices of risky assets (e.g. shares) and greater uncertainty over interest rates. The backdrop for these events is an uncertain outlook for global economic activity. The financial system and the broader economy are continuing to adjust to higher borrowing costs. And geopolitical tensions remain a key source of uncertainty.
We are monitoring events closely and their impact on financial markets, UK banks, and UK economic conditions.
UK banks are resilient and are strong enough to support households and businesses
UK household and business finances remain under pressure from higher borrowing costs and prices
Non-bank financial institutions need more resilience. The FPC is taking further action to deliver this
In late 2022, a disruption in UK government debt markets revealed vulnerabilities in certain funds used by UK pension schemes. These funds are known as . We recommended that these funds increase their resilience to interest rate shocks substantially. We have put in place further recommendations to improve the resilience of these funds. These will be taken forward by the regulators.
However, MMFs are vulnerable to rapid and large investor withdrawals and could be a source of risk to the financial system and the wider economy. That is why the Bank of England is working with other authorities to improve their resilience. The UK authorities are set to consult on these issues soon.