Bank of England divided over banks' capital buffers

Bank of England members are divided over when to start forcing banks to build up extra capital, according to minutes from the central bank's latest Financial Policy Committee meeting.

Some of the committee’s 10 members reckoned it was too soon to consider an increase in capital buffers on UK exposures.

“Though overall credit growth had increased it remained below that of nominal GDP and below pre-crisis averages. Some members had judged the UK corporate sector to have been more risk averse recently and conditions in capital markets to have tightened, with some spreads more elevated than historical averages.”

Others, meanwhile, said there could be a case for such an overall increase soon as banks need to build up “a meaningful buffer of additional capital” that could then be released if conditions worsen.

The minutes also revealed that members discussed the risks in the British commercial real estate and buy-to-let markets.

“The FPC was alert to financial stability risks arising from rapid growth in buy-to-let mortgage lending and supported the programme of work initiated by the Prudential Regulation Authority to review lenders’ underwriting standards.

“The Committee also agreed that it would need to monitor developments in buy-to-let activity closely following the tax changes to the buy-to-let market announced by the Chancellor in the Budget and Autumn Statement.”

The FPC said it "stood ready" to take action if necessary if either market was to overheat.