BoE Opens Brexit Lending Relief Value

The Bank of England, amid the volatility in world markets following the surprise and shock of the Brexit vote last month, has now moved to shore up England’s economic wellbeing, pulling back on bank capital requirements.

The Wall Street Journal reported on Tuesday (July 5) that this move — in which the central bank eased the requirements in an effort to push as much as $199 billion into the U.K. economy, with credit extended to households and businesses — is a first. In other words, said the publication, the constraints of capital that must be held on the books, now eased, means more credit can flow into the economy, with the hopes that the nation can avoid economic stagnation or decline.

The Bank of England made the announcement in conjunction with its biannual report on the state of financial stability in the region.

WSJ reported that the move will be scrutinized to see how advanced economies deal with new financial concerns that arise, with some rearview mirror gazing at the depths of the financial crisis of several years ago. These are known as macroprudential strategies and have yet to be honed in actual practice.

Under the terms of the capital requirement easements, the countercyclical capital buffer (an equity cushion that is designed to be drawn down in an onerous financial climate) has been reduced to zero, and WSJ noted that this is a reversal from previous attempts to boost that measure to as much as 50 basis points. Currently, the benchmark interest rate is zero percent (and a rate cut could be in the offing).