Record of the Financial Policy Committee meeting held on 3 October 2018

Published on 17 October 2018

At its meeting on 3 October 2018, the Financial Policy Committee (FPC):

Continued to monitor risks of disruption to the supply of financial services to UK and EU households and businesses as the UK exited the EU. The FPC had been monitoring risks of disruption that could arise in the absence of an implementation period or any other agreement. There had been considerable progress in the UK to address these risks, but only limited progress in the EU. In the limited time remaining, it was not possible for companies on their own to mitigate fully the risks of disruption to cross-border financial services. The need for authorities to complete mitigating actions was now pressing.
Continued to judge that the UK banking system would be strong enough to serve UK households and businesses through a disorderly, cliff-edge Brexit.
Reiterated that, irrespective of the particular form of the UK’s future relationship with the EU, and consistent with its statutory responsibility, the FPC would remain committed to the implementation of robust prudential standards in the UK. This would require maintaining a level of resilience that was at least as great as that currently planned, which itself exceeded that required by international baseline standards.
Continued to judge that, apart from those related to Brexit, domestic risks remained at a standard level overall. The risk appetite of creditors remained strong. But financial conditions had tightened over the course of the year and borrower demand had been restrained. As a consequence credit growth had slowed. The Committee agreed that risks to the UK from global vulnerabilities remained material.
Expressed concern about the rapid growth of leveraged lending, including to UK businesses. It would assess any implications for banks in the 2018 stress test and also review how the increasing role of non-bank lenders and changes in the distribution of corporate debt could pose risks to financial stability.
Judged that, reflecting the substantial increase in its resilience over the past decade, the UK banking system now had the capacity to absorb, in addition to a disorderly, cliff-edge Brexit, further misconduct costs and stresses that could arise from intensifying trade tensions and a further sharp tightening of financing conditions for emerging markets.
Given the current balance of risks, maintained the UK countercyclical capital buffer (CCyB) rate at 1%. The FPC would conduct, as normal, a comprehensive assessment of the resilience of the UK banking system in the 2018 stress test and review the adequacy of the 1% CCyB rate at its meeting on 28 November.
Concluded that, provided they were implemented as intended, the FCA’s proposed reforms to open-ended commercial real estate funds were beneficial to UK financial stability. To be effective, suspensions needed to operate in a rapid and consistent manner. It agreed that the proposals were not a general solution to vulnerabilities in other open-ended funds.
Agreed to delay the Bank’s launch of the next biennial exploratory scenario (BES) to September 2019. The Bank expected to publish the results of this exercise alongside the Financial Stability Report (FSR) in June 2020.