Yahoo Finance Banks shrug-off Threadneedle Street's move to boost capital buffer by £11.4bn
The extra £11.4bn that Mark Carney wants banks to set aside to cope with an economic downturn may be an eye-catching figure, but it is unlikely to raise a sweat in boardrooms across the City.
Lenders already have the capital they need to deal with the Bank of England’s decision to lift the so-called countercyclical capital buffer to 0.5pc of firms’ risk-weighted assets in 12 months time, and by a further 0.5pc by November next year.
“The banks all have this capital at present and so the question in terms of what’s required of them is whether they increase the buffer they have above what they need to have,” said Mr Carney, the Bank’s governor.
The buffer increase is “reapportioning capital within the system” he said, although Mr Carney added that “I’m not suggesting that banks won’t add a bit of capital”.
Threadneedle Street looks to bolster the countercyclical buffer at times when the economy is healthy to prepare lenders for a rainy day. It cut the buffer a year ago from 0.5pc to 0pc following the Brexit vote so that banks would bolster lending to the wider economy to offset any negative impact from the referendum.
It’s adding to one form of buffer and taking away from other elements of the capital stack
Ian Gordon, Investec
Ian Gordon, a banking analyst at Investec, said that lenders had anticipated that the buffer cut would be reversed and were well-placed to deal with the move.
“It’s adding to one form of buffer and taking away from other elements of the capital stack,” he said.
In a FTSE 100 that slipped 0.2pc, shares in Britain’s biggest banks all rose, reflecting the sector’s apparent lack of concern around the move.
The recent rapid growth in unsecured consumer credit is one of the reasons the buffer has been lifted.
Investors are now trying to gauge which lenders might be hurt by a potential bubble in consumer credit, if it bursts, and by forthcoming rules - which will be unveiled next month by the Bank - to ensure underwriting standards haven’t slipped.
Virgin Money and Lloyds Banking Group are likely to draw scrutiny from investors.
Virgin has been growing its credit card business partly with 0pc deals, offers that have drawn the attention of the Bank.
Meanwhile, Lloyds recently bought the MBNA credit card business from Bank of America, boosting its market share in cards from 15pc to around 26pc, and also owns big car loans business Black Horse. So-called Personal Contract Purchases (PCPs), a new style of car financing, have contributed to a boom in consumer credit in recent years but are starting to attract more scrutiny.
A Black Horse spokesman it “only operates in the prime lending sector, and we work closely with dealers and customers to ensure customers understand their car financing product features and benefits”.
