This is the latest in a series of blogs looking at the impact on regulators with the intention of shedding light on a particularly significant regulatory event.
The Financial Policy Committee (FPC) was perhaps the most innovative response to the regulatory failings exposed by the financial crisis. A committee of the Bank of England, its purpose is to guard the UK's macro prudential stability, alongside the firm-focused micro role of the Prudential Regulation Authority (PRA).
Today, the FPC issued the minutes of its 9 March and 24 March meetings. The key points in brief are:
- The banking sector has an average 17.5% T1 capital (3 times the level in the financial crisis) and £1 trillion high quality liquidity
- The FPC reduced the Counter Cyclical Buffer to 0% for at least 2 years, releasing £23 billion capital and a potential £190 billion lending to business
- It welcomed the Bank of England's Term Funding Scheme for SMEs (TFSME) and COVID-19 Corporate Financing facility (CCFF)
- The 2020 stress test for major banks and building societies is cancelled
Behind these headlines, it is clear from the minutes that the PRA and Bank of England are undertaking significant further analysis and that the FPC will intervene further if required. The references to the VIX index of volatility and to funding costs both point towards this, as does the suspension of the s166 reports on regulatory reporting and the stress test cancellation.
This means the focus of prudential regulation - macro and micro - is firmly on ensuring that the banking and, by implication, insurance sectors remain solvent through the COVID-19 crisis. On this basis, firms should make sure the resources freed up by the PRA and FCA having stopped various exercises remain just as focused on their in-house stress-testing.
“The backdrop to the Committee’s March meetings has been dominated by the outbreak and spread of COVID-19 (Coronavirus). The nature and global impact of this shock, and the speed with which it has spread, is unprecedented in recent history.”
Financial Policy Summary and Record (24 March 2020)