Andrew Bailey, the governor of the Bank of England (BoE), has expressed concerns about the potential risks of increasing global trade barriers. He emphasized that these barriers could lead to uncertainty in financial markets and result in higher borrowing costs for businesses and consumers.
The BoE's half-yearly report on the financial system highlighted the possibility of disruptions in cross-border capital flows, which could impact the resilience of the financial system. Bailey noted that a decline in international policy cooperation could further complicate efforts to strengthen financial stability. The report also mentioned the unique vulnerabilities faced by the U.K. financial sector due to its openness to global markets.
Bailey addressed concerns about the increasing risk of global fragmentation and emphasized the importance of maintaining a balance between financial stability and economic growth. The report also warned about the challenges posed by high levels of public debt and the potential for sharp corrections in financial market valuations.
The BoE announced a change in its approach to stress testing banks, conducting comprehensive health assessments every two years instead of annually. The report raised concerns about non-bank financial institutions, such as hedge funds, which could be vulnerable to sudden financial shocks.
The BoE's countercyclical capital buffer remains at a neutral setting of 2%, reflecting the central bank's cautious approach to maintaining financial stability.