Tuesday 13 July 2021 8:28 pm

UK lenders urged to maintain support for businesses and households

canary wharf office — "it is in the collective interest of banks to support viable, productive businesses, rather than to seek to defend capital ratios" - FPC

The watchdog of Britain’s financial system urged the UK’s largest lenders to maintain support for businesses and households today.

The Financial Policy Committee said in a report published on Tuesday that it “continues to judge that it is in the collective interest of banks to support viable, productive businesses, rather than to seek to defend capital ratios and avoid using buffers by cutting lending.”

The Committee urged banks to continue lending after they passed its stress test scenario. Conditions included in the stress test included UK unemployment peaking at just under 12 per cent and property prices plummeting 33 per cent.

“Based on the interim results of the test, the FPC continues to judge that UK banks, in aggregate, are resilient to an economic shock much more severe than the MPC’s current economic forecast and have sufficient capital to continue to support UK households and businesses even if economic outcomes are considerably worse than currently expected” it said.

“The FPC expects banks to use all elements of their capital buffers as necessary to support the economy through the recovery.”

The UK’s major lenders’ common equity tier 1 ratio – a key measure of bank strength – was near 16 per cent, more than three times higher than before the global financial crisis.

Banks have been allowed to resume normal shareholder distributions following their strong performance in the latest stress test.

The FPC added “the ability and willingness of banks to continue to lend as the economic outlook improves and government support schemes end will be necessary for a robust recovery.”