Bank of England - Financial Stability Report - December 2020

11th December 2020

The Financial Stability Report sets out our Financial Policy Committee's view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it.

Risk overview: UK households and businesses have been supported by the financial system to help them weather the economic disruption associated with Covid.

Since the start of the Covid pandemic, businesses have raised substantial funds from banks and financial markets.

Businesses, with the support of government guarantees, have borrowed £80bn so far this year, compared to £20bn by this time last year.

There are a number of risks ahead, including further disruption from Covid and the transition to new trading arrangements between the UK and the EU.

Bank resilience: UK banks are strong enough to support households and businesses through this difficult period.

Banks have high levels of capital, allowing them to absorb very big losses while continuing to lend.

By protecting the economy, it is in banks' own interest to continue to lend.

The FPC lowered the UK countercyclical capital buffer rate to 0% in March, meaning that banks have more capacity to lend. To help ensure banks plan for the future and support the economy the FPC has confirmed that it expects to keep the rate at 0% for at least another year.

UK and EU relationship: Over the past four years measures have been put in place to limit disruption to financial services at the end of the transition period.

UK authorities and financial sector firms have made extensive preparations over the transition period.

Most risks to UK financial stability have been mitigated.

Some disruption to financial services could arise which does not pose a risk to financial stability.

Whatever the future relationship with the EU, we remain committed to high financial stability standards in the UK.

The UK mortgage market: Our mortgage market measures have helped make households more resilient. And we're going to review them next year.

The measures have helped to build a ‘safety margin' so that households are better able to withstand shocks to their jobs, incomes, or mortgage interest rates.

The FPC will review its mortgage market Recommendations in 2021.

Systemic stablecoins and financial stability: The way we make payments is changing.

Developments in technology and the impact of Covid have accelerated changes in how we pay for things.

Stablecoins are digital tokens that claim to maintain a stable value relative to existing forms of money. To be successful as a way of making payments, they must meet standards that ensure they are as safe as existing forms of money.

Read the full report HERE