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As the lending reserve requirement was abolished, oh, sorry, I mean 'reduced to zero' in the US last week, thought I'd take a look at what we're doing here. After all these years, I still find the terminology confusing, they could not make it more offputting and 'keep walking, nothing to see here', but pretty sure have got this right.

 

From the Bank of England on 11 March https://www.bankofengland.co.uk/news/2020/march/boe-measures-to-respond-to-the-economic-shock-from-covid-19

"the Financial Policy Committee (FPC) has reduced the UK countercyclical capital buffer rate to 0% of banks’ exposures to UK borrowers with immediate effect. The rate had been 1% and had been due to reach 2% by December 2020.

The FPC expects to maintain the 0% rate for at least 12 months, so that any subsequent increase would not take effect until March 2022 at the earliest."

 

How do they reconcile that with this, from https://www.bankofengland.co.uk/financial-stability

"The FPC increases the CCyB when it judges that risks are building up. This means that banks are required to have an additional cushion of capital with which to absorb potential losses, enhancing their resilience and contributing to a stable financial system."

 

Thoughts?

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I'd like to take this opportunity to say "No return to Boom and Bust"

 

 

 

What I hadn't realized was that this wasn't originally Mr Brown's idea:

https://www.independent.co.uk/news/uk/politics/lawson-sideswipe-over-end-to-boom-and-bust-1424034.html

 

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The countercyclical buffers were never for more than a token amount. I don't believe they've ever been higher than 0.5%

They were last dropped to zero in 2016, however most would agree the issues today are an Order of magnitude worse. In fact in 2016 this released £5.7Bn in capital for funding. This in theory creates £150bn of available funding. The BoE have failed to fix the roof while the sun was shining and spent all their ammunition on day one. 

http://ftalphaville.ft.com/2016/07/05/2168309/boe-thats-why-we-have-a-countercyclical-capital-buffer/

The buffers should really have been around 5% minimum. Some banks were sitting around 5-6%, some up to 12-14%.

If you had been able to build all banks up to 15%, release 5% of that in dribs and drabs you would have left them with 10% which was still higher than all banks had in 2008. 

Edited by regprentice
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6 hours ago, regprentice said:

 The BoE have failed to fix the roof while the sun was shining and spent all their ammunition on day one. 

http://ftalphaville.ft.com/2016/07/05/2168309/boe-thats-why-we-have-a-countercyclical-capital-buffer/

Not just failed to fix the roof. 

 

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  • 415 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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