UK June Financial Stability Report Published

The U.K. Financial Policy Committee has published the financial policy summary and record of the FPC meeting on June 11, 2024, as well as its June financial stability report. The FPC considers the overall risk environment to be broadly unchanged from Q1. Markets continue to price mostly for a benign central case outlook, and some risk premia have tightened even further, despite the global risk environment facing several challenges. Some of these challenges have become more concerning and proximate.

The financial policy summary and record covers various topics, including:

• Private equity. The FPC notes that improved transparency over valuation practices and overall levels of leverage would help to reduce the vulnerabilities in the sector. Risk management practices in some parts of the sector also need to improve, including among lenders to the sector such as banks. The FPC will consider the outcome of regulatory work by the Financial Conduct Authority and Prudential Regulation Authority to address some of these issues.
• U.K. banking sector resilience. The FPC believes that the U.K. banking system has the capacity to support households and businesses, even if economic and financial conditions were to be substantially worse than expected. However, it does note that there are a number of system-wide factors that are likely to affect bank funding and liquidity over the coming years. As such it is important that banks factor these system-wide trends into their liquidity management and forward planning over the coming years.
• The U.K. countercyclical capital buffer rate. The FPC is maintaining the U.K. CcyB rate at its neutral setting of two percent.
• Liability-driven investment funds. Given the significant progress made on LDI fund resilience across domestic and international authorities over the past 18 months, the FPC has closed its November 2022 and March 2023 recommendations on LDI resilience.

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