Financial Stability Report – December 2023

The Financial Policy Committee (FPC) of the Bank of England (BoE) has published its latest financial stability report. Besides providing an update on the impact of higher interest rates on households and businesses, BoE stresses the following topics relevant in 2023:
1. Crypto-assets market
At the moment, the risks of unregulated crypto-assets is not a threat however global and local policies and regulations are urgently needed as the market for these types of assets is rising.
2. Highly indebted companies
Rising interest rates are causing companies to cut back more on borrowing from financial institutions, investment and employment, which could pose a risk to the UK economy.
3. Discontinuing the Affordability Test Recommendation
After having implemented the recommendation for mortgages in 2014 (to see if borrowers were able to afford the mortgage even after a spike in the interest rates), it has been discontinued in August 2022, however it has had little effect on the market participants‘ appetite for mortgages.
4. Bank funding and liquidity
The current trend leans towards growth in interest-bearing deposits, which should be taken into consideration by banks into their liquidity management.
5. Introduction of SWES (see eventid=21596 and eventid=23891).
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Additionally, following the stability report from Summer 2022 (see eventid=16393), the countercyclical capital buffer rate remains at 2%.