Bank of England raises capital requirements for United Kingdom banks by $14.5 billion

Deutsche Bank

Deutsche Bank

The Bank and the City watchdog are already preparing tougher guidance for lending on credit cards and personal loans which will be published next month.

The move takes immediate effect and puts the target figure at £11.4 billion ($14.5 billion, 12.9 billion euros), with the FPC expected to increase the rate to 1.0 percent in November, with binding effect a year later.

In its Financial Stability Report, it said some lenders are behaving irresponsibly by relaxing their affordability checks when they decide whether to issue loans and credit cards.

The BOE set the countercyclical capital buffer at 0.5 per cent of risk-weighted assets for United Kingdom loans effective in June 2018.

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Deutsche Bank

Further, it said banks would need to fund themselves with a minimum level of shareholder equity equal to 3.25 per cent of exposures, up from 3 per cent.

"We start from the most hard situation from a financial stability perspective", Mr.

It said the biggest risk was the rapid growth of consumer lending, with auto finance having rocketed by around 15% and credit card borrowing by nearly 10%.

The Bank of England has tightened up mortgage rules first implemented in 2014, saying that some lenders had forgotten the lessons of the past.

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Borrowers often do everything they can to pay off mortgages, but are less afraid about defaulting on credit cards or auto loans.

The Bank said that while consumer lending is a seventh of the size of the mortgage market, the write-offs can be 10 times larger than with home loans.

Bank governor Mark Carney said the initial strategy had worked - by "supporting domestic demand during a period of heightened uncertainty" - but that risks to the United Kingdom economy had now returned to a more normal level. Some of the central banks' interest rate setters now think it is time to raise its main interest rate.

In these cases, most of the risk lies with the bank rather than the borrower.

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The report showed that some of the global risks previously highlighted had not come to pass, although the Bank remains concerned over ballooning debt levels in China, which is now 257% of gross domestic product.

With a current leverage ratio of 5.25 percent, banks shouldn't face a massive challenge meeting the demands, he added, although warned that: "The banks are not gaming the system, but they're not learning the lessons of the past", Carney said.

Those concerns include prospects for Brexit talks ending without an agreement on future economic ties to the European Union; a rapid rise in consumer borrowing in Britain; and heavy indebtedness in China.

On Brexit, the BOE said it will oversee banks' contingency planning for a "range of possible outcomes" of the talks on the United Kingdom withdrawal from the European Union.

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"Secondly this overall risk of a high proportion of heavily-indebted households that could make a downturn worse". The regulation is meant to ensure banks have enough capital to weather losses and continue making loans to support the economy.

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