The referendum on the United Kingdom’s membership in the EU is the most significant near-term domestic risks to financial stability, the Financial Policy Committee of the Bank of England said Tuesday.
The FPC judged that the outlook for financial stability has deteriorated since it last met in November 2015. The bank today published the record of the FPC meeting held on March 23.
Risks associated with domestic credit are no longer subdued, and global risks, which can also affect UK exposures indirectly, are heightened, the bank said.
The effect of uncertainty has been most marked in forex markets, both in spot and options. “Looking ahead, heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of UK assets,” the FPC said.
The bank also cautioned that the impact of a decision of the U.K. to withdraw from the EU could spill over to the euro area, driving up risk premia and further diminishing the prospects for growth there.
The BoE plans to set the countercyclical capital buffer at about 1 percent in the standard risk environment. This will increase transparency and sharpen the incentives of the buffer system.
The BoE also published a consultation paper seeking views on conditions regarding buy-to-let mortgage contracts.
The Prudential Regulation Authority proposed to prevent a marked loosening in buy-to-let underwriting standards and to curtail inappropriate lending.
The material has been provided by InstaForex Company – www.instaforex.com