Bank of England to “stress-test” lenders in face of spiralling household debt
The Bank of England (BoE) has announced that it will review lending standards in an effort to kerb spiralling household debt.
The bank’s Financial Policy Committee (FPC) said it was concerned with consumer credit “growing particularly rapidly”.
The announcement comes as the FPC prepares to test banks in the wake of Britain leaving the European Union.
The FPC said it will “stress-test” banks to ensure that they have the money and systems in place to counter unexpected scenarios.
It said, in the first of two tests, that lenders will have to show that they can withstand a drop-off in foreign investment.
The Bank said: “As highlighted in recent financial stability reports, the United Kingdom’s large current account (trade) deficit creates a vulnerability to a reduction in foreign investor appetite for UK assets and increases in funding costs for real-economy borrowers.
“The 2017 cyclical scenario incorporates a sudden increase in the rate of return investors demand for holding sterling assets and an associated fall in sterling.”
The second will test whether lenders could withstand pressures of ultra-low interest rates.