Bank of England

Read a round-up of the latest news from the Prudential Regulation Authority (PRA). This edition includes: · PS19/24 – Strong and Simple Framework: The definition of an Interim Capital Regime (ICR) firm · CP16/24 – Remuneration reform · CP15/24 – Proposed changes to the UK Insurance Special Purpose Vehicles (UK ISPV) regulatory framework · PS15/24 - Review of Solvency II: Restatement of assimilated law · PS16/24 – Operational resilience: Critical third parties to the UK financial sector · PS18/24 – Supervisory statement – Prudential assessment of acquisitions and increases in control · All the details about our PRA Innovation Week 2024, where we discussed the latest technology developments across the financial services sector. Read more here: https://b-o-e.uk/4gfDHAO #PRARegulatoryDigest

The Bank of England has published the conclusions of its system-wide exploratory scenario exercise (SWES). This world-leading exercise has brought together over 50 participating firms to explore how banks and non-bank financial institutions react in a 10-day market stress, how they sometimes have mismatched expectations of each other, and how their actions could combine to impact UK financial stability. Our six key conclusions relate to financial firms’ risk management and to authorities’ policymaking and risk monitoring. For more information see the full report: https://b-o-e.uk/3Z3PlYw

Long-term government borrowing costs in the UK and US have increased following the UK budget and US election. Monetary policy makers have continued to cut interest rates, and market participants expect them to continue to do so. The prices of riskier assets such as shares have risen since the June FSR. In parallel, the amount investors are compensated for taking risks has fallen further and is close to historical lows in several markets. This suggests that investors in financial markets are continuing to expect steady global growth and for inflation to be contained. They are placing less weight on risks, like the global challenges highlighted above. To read more, see section 1 of the November 2024 FSR. https://b-o-e.uk/3VdR90i

With continued strong income growth and low unemployment, the amount of debt held by UK households relative to their income has fallen further since Q3. While many UK households, including renters, are still facing pressures from the increased cost of living and higher interest rates, the share of households who are behind in paying their mortgages is low by historical standards. And the share of households spending a high proportion of their income on mortgage payments is expected to remain low. To read more, see section 4 of the November 2024 FSR. https://b-o-e.uk/3VeX4Ch

Our 2024 desk-based stress test showed that the UK banking system is strong enough to support households and businesses even during severe stress scenarios. The test suggests that banks’ aggregate capital ratio would remain above the hurdle rate in both a severe supply shock scenario, in which a global shock drives higher inflation and interest rates, and a severe demand shock scenario, in which there is a sharp fall in global activity that results in lower inflation and interest rates. To read more, see sections 5 and 6 of the November 2024 FSR. https://b-o-e.uk/413gcqu

Global risks associated with geopolitical tensions, global fragmentation (reduced co-operation on trade and international policy) and pressures on government debt levels remain material. Uncertainty around, and risks to, the global economic outlook have increased. High government debt levels in major economies could have consequences for UK financial stability and interact with other risks. Specifically, a deterioration in market perceptions about the sustainability of the long-term path of government debt globally may lead to higher rates and sharp movements market prices. To read more, see section 2 of the November 2024 FSR. https://b-o-e.uk/49fGtnG

Sarah Breeden sets out the key findings from our Financial Stability Report. The global outlook has become more uncertain but our stress test shows that UK banks can support households and businesses even if conditions are worse than expected. Our system-wide exploratory scenario, the first of its kind around the world, has provided insights about how banks and non-banks might react to a severe shock. https://b-o-e.uk/4f0q3Rm

The #FinancialStabilityReport press conference will begin shortly. Watch here: https://b-o-e.uk/49bfUje

Our Financial Stability Report looks at the risks in our financial system and what we are doing to ensure households and businesses can rely on it. https://lnkd.in/ep9hBwNF #FinancialStabilityReport

Yesterday, we hosted the Climate Financial Risk Forum (CFRF) Symposium 2024, alongside the Bank of England and the Financial Conduct Authority – focusing on the achievements of the CFRF over the past year and how climate and the net zero transition are being considered and integrated into market practices. This half-day event featured speakers including: David Bailey, Co-Chair, CFRF, and Executive Director, Prudential Policy, Bank of England; Sacha Sadan, Director of Sustainable Finance, FCA; Balbir Bakhshi, Chief Risk Officer, LSEG; Professor Jason Lowe OBE, Professor Jason Lowe OBE, Head of Climate Services Met Office, & Pristley Chair in Interdisciplinary Climate Research, Leeds University; and Vanessa Havard-Williams, Chair of the Transition Finance Market Review. Watch the recording here: https://lseg.group/4181Yoo #SustainableFinance