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Carney offers £150bn boost for household and business lending

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  • 05/07/2016
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Carney offers £150bn boost for household and business lending
Lending capacity at banks and building societies has been boosted by £150bn following a reduction in capital liquidity buffers as the Bank of England moves to ensure the availability of credit remains stable.

The measure was announced by the Financial Policy Committee (FPC) in its Financial Stability Report which laid out its plans to protect the UK economy from major disruption following the Leave vote on 23 June.

Bank of England Governor Mark Carney said that lenders will be allowed to draw on their significant capital liquidity buffers which have been built up since the financial crisis to continue to support the UK’s households and businesses.

The Prudential Regulation Authority will reduce the UK countercyclical capital buffer rate from 0.5% to 0% of banks’ UK exposures with immediate effect.

This means that banks and building societies’ regulatory capital buffers will be reduced by £5.7bn resulting in the freeing up of £150bn for lenders to advance to UK households and businesses.

Three quarters of banks, accounting for 90% of the stock of UK economy lending, will immediately have greater flexibility to maintain their supply of credit to the real economy. Other banks will no longer see their regulatory capital buffers increase over the next nine months, increasing their capacity to lend to UK households and businesses too.

Speaking at the press conference, Carney said those households and businesses that wish to seize opportunities will be able to do so in a post-EU world. He added that any slowing in credit growth would be demand driven and not because of a lack of supply from the UK’s lenders.

The governor said he expected to see a much more risk averse environment and it was important to ensure there was no question about the availability of credit. “We want to take that concern off the table,” he said.

None of this boosted lending capacity is to be used to increase dividends and other distributions.

The FPC expects to maintain a 0% UK counter-cyclical capital buffer rate until at least June 2017.

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