BoE Cuts Capital Buffer Requirements for UK Banks

Market Trends - 05/07/2016

The Bank of England released its Financial Stability report today where it lowered the UK bank's capital buffer requirements to zero stating that it was required to ensure stability in the financial system after Brexit. The capital buffer requirements, which is part of the Basel III agreement is an additional capital requirement for banks and was previously at 0.50%. The new zero percent capital buffer requirements go into immediate effect and expected remain zero bound until June 2017. It is expected to allow an additional £150 billion in lending for UK businesses and households.

The Bank of England Governor Mark Carney previously said that after the Brexit vote, the central bank would maintain financial stability including cuts to interest rates to sustain growth while not ruling out additional easing measures including using the central bank's asset purchase program. GBPUSD has been steadily falling since the market open today and is down 0.87% for the day. A modest risk off sentiment was also playing out with US stock futures pointing to a weaker open while European indices were mixed with the German DAX and CAC40 losing 1.37% and 1.32% respectively. The FTSE100 on the other hand remained flat, posting modest gains of 0.10% at the time.

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