BoE has published the latest Financial Stability Report. Key messages include:
- pleasing strength in the banking markets to support the recovery of the economy – banks are able to lend to households and businesses even in very challenging scenarios and still meet stress tests, and it is in their interests to lend to viable businesses;
- increased risk taking in financial markets with some asset prices looking stretched – which partly reflects the better economic outlook but may also be reflective of a search for yield in a low interest rate environment and higher risk-taking; and
- work to be done on market-based finance. The BoE wants to ensure the demand for cash-like assets in a stress is managed to avoid any threats to financial stability, to improve liquidity supply in stressed times and consider whether central banks need new tools to support liquidity and market functioning as a last resort.
The FPC is working to ensure the financial system is ready to serve the future economy, not least through stress testing banks to check their resilience to climate change and looking at new forms of digital money.