The Bank of England has published its Financial Stability Report, which frees up an extra £150bn in bank lending.
Mark Carney, Governor of the Bank of England, yesterday took steps to reduce capital buffers for UK banks. The Financial Policy Committee (FPC) has reduced the UK countercyclical buffer rate from 0.5% of the banks' UK exposures to 0%, with immediate effect. The FPC began to supplement regulatory capital buffers with the UK countercyclical buffer in March of this year, and had intended to increase the buffer to 1% in due course. But now the countercyclical buffer is expected to remain at 0% until at least June 2017.
This reduction is expected to free up £5.7bn in bank lending. The banking sector, in aggregate, targets a leverage ratio of 4%. This means that the £5.7bn in spare capital will allow the banks up to an extra £150bn in lending to UK households and businesses.
While the FPC’s actions would appear to be good news for UK borrowers, they may well herald a more competitive stretch for alternative lending platforms. The £150bn in freed up capital dwarfs the cumulative lending volume of the UK’s marketplace lending sector, which stands today at a little over £7bn, according to the Liberum AltFi Volume Index UK. Of course, the fact that the banks are more at liberty to lend does not necessarily mean that they will. But Carney is attempting to incentivise them to keep lending even in the face of post-Brexit uncertainty.
James Meekings of Funding Circle recently called on the British government, through the medium of the British Business Bank (BBB), to lend more money via UK marketplace lenders. “We think during this time of uncertainty that what the British government should be doing is backing small businesses,” said Meekings. He argued that Funding Circle – and indeed other alternative finance platforms – allow for large sums of state money to be invested quickly and efficiently in small businesses. Funding Circle has received £60m in BBB money to date.
Kevin Caley, Founder and Chairman of ThinCats, recently referred to Carney as “a safe pair of hands”, and also described him as having championed the UK’s fintech sector. Caley hopes for more “forward-thinking” from the Governor in the coming months of uncertainty. Carney has certainly sought to provide that by reducing buffers for the banks, but will his actions spell trouble for the UK’s alternative finance sector?
Ian Anderson (@Altfitech) July 5, 2016
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.