The Financial Policy Committee (FPC) published its Financial Policy Summary and said it was closely monitoring these events and the UK banking sector. It said regulations meant UK banks were able to “absorb shocks” and were currently healthy with “significant financial resources”.
The report said: “The UK authorities have put in place a range of robust prudential standards, designed to ensure levels of resilience which are at least as great as those required by international baseline standards.
“These include a liquidity framework and capital requirements that are calibrated to the risks faced by individual firms. They apply to all UK banks.”
The FPC said the Prudential Regulation Authority (PRA) assessed banks on their resilience to interest rate risk, including a requirement to hold capital to mitigate this. It said many banks were “actively manage their interest rate risk” and considered the maturity and variability of interest rates on funding and assets.
The FPC said: “The UK banking system is well capitalised.
“The UK banking system therefore has the capacity to support the economy in a period of higher interest rates even if economic conditions are worse than expected.”
The collapse of Silicon Valley Bank was linked to rising interest rates while the failure of Credit Suisse was put down to numerous oversights including changing management and significant losses.
Households and businesses ‘under pressure’
The FPC considered UK households to be impacted by increased living costs and higher interest rates. However, a fall in energy prices means fewer people will struggle with their mortgage payments than previously expected. It also said the improvement in UK unemployment contributed to the improved outlook.
The report said tightened financial conditions were affecting the ability of households and businesses to service their debts and the full impact was yet to be fed through to borrowers.
It said: “Higher debt servicing costs could lead to credit losses for banks, including in the UK.”
On a global level, the FPC said commercial real estate was “potentially vulnerable” as higher interest rates reduced property values and people’s ability to service debt.
Generally, UK firms are still able to protect themselves but smaller businesses may find themselves exposed to higher debt servicing costs.
