Carney says some of the risks predicted to the economy before the referendum on leaving the European Union have begun to crystalize, but that the institution will act to support jobs and growth.
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The BOE’s Financial Policy Committee said it agreed to lower capital requirements for United Kingdom banks by GBP5.7 billion ($7.6 billion) in a move that should allow them to lend an extra GBP150 billion to United Kingdom businesses and households after Brexit.
Peter Hill, chief executive with Leeds Building Society, told The Yorkshire Post that the wording of Mr Carney’s speech was unusual for a Governor of the Bank of England and that he saw no reason why any bank or lender should be seeking to reduce lending. “It means that three-quarters of U.K. banks, accounting for 90 percent of the stock of U.K. lending, will immediately – immediately – have greater flexibility to supply credit to U.K. households and firms”.
In a widely expected move, the Bank’s Financial Policy Committee (FPC) cut one of its extra capital requirements – the countercyclical capital buffer – from 0.5 per cent of a bank’s risk-weighted assets to zero.
After the initial market turmoil, British lenders showed only contained demand for central funds at a six-month liquidity auction last week, though on Thursday the BoE said the normally monthly auctions would continue weekly as a precaution.
But he said there were signs that people were pulling out of investments and becoming less keen to take risks, which is why the bank is easing up on the lending rules, to get the economy moving again.
“Reducing capital requirements essentially makes it possible for banks to lend more, but there’s no particular reason to believe they will, especially if there’s lot of anxiety about the financial situation”, he said.
But the Governor said while the Bank was putting its plan into operation, it could only do so much and “cannot fully offset the economic and market volatility”.
The Bank of England in the City of London, the UK.
The pound has been dragged lower in recent days as three British commercial property funds worth about £9bn suspended trading, after the referendum prompted a rapid increase in investors trying cash in their holdings.
Banks hold “substantial capital and liquidity buffers” which can be “drawn on, as needed, to allow the system to cushion shocks and maintain the provision of financial services to the real economy”, the FPC said.
The Bank said it also remains concerned about the buy-to-let market, while it added that the global economy and Eurozone looks vulnerable to a “prolonged period of heightened uncertainty”.
In the press conference, Carney also said the FPC was still considering the consequences of changing interest rates.
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Last week Mr Carney said further “monetary easing” could be required over the summer – hinting at further cuts to already historically low interest rates.
