The Bank of England’s mixed information on the Bank of England
As the news spreads, it is not the clearest.Bank of England Announced this week The disastrous economic consequences of the coronavirus pandemic are waning, and lenders can immediately pay dividends again. But at the same time, the central bank exempted these lenders from a “countercyclical buffer”—an additional buffer of shareholder funds to absorb losses, almost like a rainy day fund—in practice for at least 18 months. The Bank of England’s reasoning is understandable, but there is a risk of inconsistency. If banks are healthy enough to remove restrictions on dividends, then they should be healthy enough to contribute to a buffer.
The Bank of England, like the Federal Reserve and the European Central Bank, Restrictions imposed In 2020, with the emergence of Covid-19, governments have adopted a belligerent stance: It is undoubtedly correct to encourage the establishment of capital buffers. Dividend limits are an emergency measure in extraordinary times. Even considering the low loan losses, their end use can be discussed after the fact. As the Federal Reserve recently lifted its own restrictions and the European Central Bank plans to take similar steps, the Bank of England is expected to follow suit. After all, paying dividends sends a message that banks are worth investing.However, although the Fed’s decision may be justified by the Fed’s decision Great gains reported so far In the eyes of major American banks, the situation in the UK is a bit vague.
At the best time, reading tea is a difficult job. With economic and financial cycles developing at different rates, the Bank of England now faces a particularly annoying task. Although the global economy is still coming out of the recession, the asset market has continued to recover. The stock and real estate markets have reached new peaks. In the UK, government measures resulted in the biggest increase in house prices in a decade.in Its reportThe Bank of England’s Financial Policy Committee pointed out that changes in market expectations for growth and inflation may cause asset prices to plummet. Overall, it believes that the UK’s economic outlook has improved relative to its forecast six months ago, mainly due to the effects of the vaccine launch.
at the same time, Anti-cyclic bufferIt is currently set to zero and should usually be adjusted upward during periods of economic curve that the Bank of England considers to be upwards so that banks can use it to continue lending and absorb losses during more difficult periods. An important measure taken after the financial crisis is to protect the economy from banks and banks from economic infringements.
The reason for the Bank of England not to increase the buffer for at least six months—any increase will not take effect in a year—is that households and businesses will continue to need support, especially when unconventional measures are gradually reduced during the pandemic. under. Not having to build buffers is an additional incentive for banks to lend to the real economy. But the Bank of England also announced a stress test on bank balance sheets on Tuesday, showing an “encouraging” picture, showing the banks’ adaptability and lending ability to results far below the Bank of England’s current central forecast. This helps to improve cushioning.
Either way, shareholders should not expect generous dividends.The Bank of England will rely heavily on banks to ensure moderation, especially when Coronavirus variants swept across Through the UK, the impact of loan losses that are not protected by economic stimulus measures on banks is unclear. This pressure is welcome. But at the same time it is better to supplement the bank’s emergency fund.