"The consensus forecast has moved a long way very, very quickly. If you get a very powerful recovery, the arguments for guidance, for the extended period of low rates, just look so much weaker. It's a bit of a communication challenge."
- Jens Larsen, an economist at RBC Capital Markets in London and a former BOE official
Should the BoE make it requirement of banks to hold liquid capital to avoid possible risks more strict, and what kind of approach should be used when speaking about prudential regulation? These questions have been a frequent topic among analysts and financial regulators since the severe financial crisis in 2008, when the whole banking sector was brought to its knees due to poor business culture, mediocre oversight and loose regulation. Additionally, some analysts even claimed that overly strict capital requirements could weigh on bank's ability to lend to companies and households. In order to address this issue, Mark Carney published BoE's quarterly bulletin on bank liquidity and capital requirements. Carney highly recommends prudential regulation in order to ensure the safety and stability of lenders to avoid a possible disruption of critical services that bank usually provides to the economy, meaning payments services of providing loans to citizens. Regarding the lending and control, Carney said banks will have to do a more intensive supervision of lending. The comment follows growing speculation of a growing housing bubble and in order to withstand it, financial regulators should extend higher capital requirements to the banks. Currently, banks are targeting a risk-weighted capital ratio that is based on the Basel III rules of a minimum requirement of 7%, and according to the BoE domestic banks still have to fill a remaining gap of 13.4 billion pounds in capital buffers until the end of this year.
© Dukascopy Bank SA