Financial stability

The Bank of England is responsible for making sure the financial system is safe and sound.

The economy is only healthy if people have confidence in financial institutions, markets and infrastructure. We play an important role in maintaining financial stability, which we do through a number of key mechanisms, policies and frameworks, set out below.

The Bank of England sets out its strategy for maintaining Financial Stability at least every three years.

PDFFinancial Stability Strategy

The Financial Policy Committee

The Bank of England’s Financial Policy Committee (FPC) identifies, monitors and takes action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC also has a secondary objective to support the economic policy of the Government.

Members of the FPC

The FPC also gets a remit letter, typically annually, from the Chancellor. The Governor, on behalf of the FPC, sends a formal response to the Chancellor’s letter. 

Financial Policy Committee meetings

The FPC meets typically four times a year.

The FPC’s decisions are set out in records of their meeting, which are published after each meeting, as well as in the Financial Stability Report.

The Financial Stability Report

Twice a year, the FPC publishes a Financial Stability Report, which sets out the committee’s view on the main risks to financial stability and assesses how prepared the financial system is to withstand these risks.
 
The Financial Stability Report also summarises the FPC’s recent activities and assesses the impact of any actions it has taken.

Stress testing

The FPC, alongside the Prudential Regulation Committee (PRC), contributes to the design and calibration of the Bank’s stress testing framework. Stress tests allow the FPC and the PRC to assess banks’ resilience and make sure they have enough capital to withstand shocks, and to support the economy if a stress does materialise.

Stress testing

Financial Policy Committee powers

The FPC has two sets of powers – powers of direction and power of recommendation.  The FPC has the power to direct regulators to take action on a number of specific policy tools. In addition, the FPC can make recommendations to anyone to reduce risks to financial stability.

FPC powers of direction:

  • set the countercyclical capital buffer (CCyB) rate for the UK.
  • set sectoral capital requirements for UK firms
  • set a leverage ratio requirement for UK firms
  • set loan-to-value and debt-to-income limits for UK mortgages on owner-occupied properties
  • set loan-to-value and interest cover ratio limits for UK mortgages on buy-to-let properties.
The FPC publishes policy statements for each of its powers of direction to explain how it plans to use them and why.

 

PDFThe FPC's approach to setting the countercyclical capital buffer

ExcelCountercyclical capital buffer core indicators

PDFThe FPC's powers to supplement capital requirements

ExcelSectoral capital requirements core indicators

PDFThe FPC's powers over leverage ratio tools

PDFThe FPC's powers over housing policy instruments

Excel Housing tools core indicators

Countercyclical capital buffer rates

The countercyclical capital buffer (CCyB) is a tool that enables the FPC to adjust the resilience of the banking system. The FPC increases the CCyB when it judges that risks are building up. This means that banks are required to have an additional cushion of capital with which to absorb potential losses, enhancing their resilience and contributing to a stable financial system.

CCyB rates on foreign exposures

A cornerstone of the international CCyB framework is that when lending to borrowers in another country, foreign firms should face the same CCyB rate as the domestic firms in that country.

The following table shows all positive CCyB rates recognised or set by the FPC on foreign exposures for UK firms in specific countries. 

Country  Current CCyB rate  Implementation date  Pending CCyB rate  Implementation date 
United States  0.00%  24 Oct 2016    
Hong Kong  1.25%  1 Jan 2017 1.875%  1 Jan 2018
Norway  1.50%  30 Jun 2016 2.00%  31 Dec 2017
Sweden  2.00%  19 Mar 2017     
Czech Republic  0.50%  1 Jan 2017  1.00%  1 Jul 2018 
Iceland  1.25%  1 Nov 2017     
Slovakia  0.50%  1 Aug 2017  1.25%  1 Aug 2018 
The information in this table reflects policy decisions taken on or before 7 November 2017 and published on publically available websites.
 

PDFThe FPC's approach to setting the countercyclical capital buffer

ExcelCountercyclical capital buffer core indicators

ExcelCountercyclical capital buffer guide

Resolution: managing failed financial institutions

We use a process called resolution to intervene in and manage failed financial firms to make sure the impact on the economy is kept to a minimum.

Resolution

Supervising financial market infrastructures

Financial market infrastructures, such as payment settlement systems and central counterparties, play a key role in keeping the economy moving. The Bank of England is responsible for overseeing these important services.

Financial market infrastructures

Prudential regulation

We regulate around 1,700 banks, building societies, credit unions, insurers and investment firms to make sure they are safe and sound.

This page was last updated 05 December 2017
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