LONDON • The Bank of England (BoE) is planning to cut banks' capital requirements as early as next week, giving lenders more flexibility to withstand the fallout of the nation's vote to leave the European Union (EU), according to people with knowledge of the discussions.
The BoE's Financial Policy Committee (FPC), which met this week, plans to reverse a decision it took in March to raise the countercyclical capital buffer for United Kingdom exposures to 0.5 per cent of risk-weighted assets from zero, said the people, who asked not to be identified because the discussions were private.
That increase was to become binding from March 29 next year and was meant to guard against the cycle of banks boosting lending in good times and slashing credit in a downturn.
It is "a clear sign that the BoE really does see capital buffers as there to be used, which would be a welcome vote of confidence in the new system," Mr Philip Rush, an economist at Nomura International, said in an e-mail. BoE Governor Mark Carney has sought to calm markets rattled by the shock of Brexit and the chaos engulfing Britain's political classes.
In a televised address on Thursday, Mr Carney signalled the central bank could cut interest rates within months and said officials will not hesitate to act when it comes to safeguarding the economy or the resilience of the financial system. A BoE spokesman declined to comment.
Next Tuesday's FPC meeting is likely to be dominated by discussions about the stability implications of Brexit. Officials are scheduled to release a statement alongside their bi-annual Financial Stability Report, and Mr Carney will host a press conference. The FPC will "take any further actions it deems appropriate to support financial stability", Mr Carney said on Thursday.
Brexit has been a blessing for UK megacaps. Supported by the plunging pound, the FTSE 100 Index - loaded up with multinational commodity producers, drugmakers and banks - has recovered after its post-Brexit tumble. More than that, Mr Carney's reassurance that the BoE will loosen policy sent the gauge to its highest level since August.
The FTSE 100 Index climbed 0.3 per cent at 8.33am in London yesterday. It's 7.1 per cent higher on the week, on course for its best performance since 2011.
HSBC Holdings and Citigroup have raised their ratings on Britain's biggest companies, while JPMorgan Chase, Societe Generale and Deutsche Bank are among those bullish on the stocks.
"What a fantastic week for the FTSE 100," said Mr Yogi Dewan, chief executive officer of Hassium Asset Management in Gerrards Cross, UK. "Who would have thought last Friday morning that I'd be saying this. We did think the selloff was overdone and that there was a very obvious currency story, but it's the effectiveness of central banks that has made it such a measured and orderly reaction."
UK midcaps - more sensitive to the domestic economy - are still far from erasing their losses. The FTSE 250 remains 6.1 per cent lower than on June 23 amid growing concern over the nation's outlook.