UK banking sector ’significantly more stable’
The UK’s financial system has become “significantly more stable over the past six
months”, the Bank of England has reported.
It said the situation had improved on the back of its efforts to assist the sector,
such as its quantitative easing (QE) programme and 0.5% interest rates.
However, it said the commercial banks still had to do more to improve their long-term
stability.
The Bank is spending £200bn under QE to boost lending in the banking sector.
The Bank is using new money to buy assets from banks and other companies, in order to
stimulate both bank lending and the wider economy in general.
The Bank’s comments have come in the latest edition of its bi-annual Financial
Stability Report, which puts across its current assessment of the strength of the
financial sector and ways to improve it in the future.
It said that over the past six months, banks had been able to increase their profits,
reduce concerns about potential future losses and raise further external capital –
thereby reducing their reliance upon short-term funding.
However, it cautioned that the banks would still need further time to recover from
the crisis in the financial system, and that in the meantime, they “remain vulnerable
to the risk of less than expected economic recovery”.
With banking sector profits now “relatively buoyant” again, the Bank said the
commercial lenders should “take opportunities to strengthen their balance sheets,
including by not distributing an excessive amount of profit”.
It added that the root cause of the crisis in the global financial sector over the
past year had been “excessive risk-taking in the upswing of the credit cycle and
insufficient resilience in the subsequent downturn”.
The Bank said these two factors had to be tackled to prevent a similar crisis
happening again in the future.
Its comments come as the government’s Financial Services Bill is making its way
through parliament.
The bill’s aim is to give the City watchdog, the Financial Services Authority, more
powers to regulate banks, such as the authority to stop bankers from receiving
excessive bonuses, and to cancel any pay packages which appear to reward undue risk-
taking.
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