The Bank of England is considering delaying plans to tighten banks’ capital requirements because of concerns created by Russia’s invasion of Ukraine.
In an update on financial stability the central bank said UK lenders were financially strong and could withstand a period of severe stress. But it said economic uncertainty meant it might not be wise to increase cyclical capital requirements as planned in the second quarter.
Domestic risks have not changed since the BoE announced plans to raise banks’ countercyclical capital buffer to 2% from 1%, it said. But the global outlook has become more uncertain, it added. The increase was due to be announced in the second quarter and take effect at the end of 2022.
“Uncertainty around, and downside risks to, the economic outlook have increased significantly following Russia’s invasion of Ukraine,” the BoE’s Financial Policy Committee said.
“Given this uncertainty, the committee will continue to monitor the situation closely and stands ready to vary the UK CCyB [buffer] rate – in either direction – in line with evolution of economic conditions, underlying vulnerabilities and the overall risk environment.”
The BoE also said it would wait to hold an annual stress test for banks, which was suspended during the Covid-19 crisis, until later in 2022.