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A Bank of England sign is displayed outside the bank in London, England.  Peter Macdiarmid/Getty Images

Bank of England to make it easier for banks to lend money

Lewis Wallace Jul 5, 2016
A Bank of England sign is displayed outside the bank in London, England.  Peter Macdiarmid/Getty Images

The Brexit decision is still shaking things up in the British economy, and in response to some of that volatility, the Bank of England announced on Tuesday it will make it easier for financial institutions to lend money. The central bank will lower the requirements for how much capital financial institutions need to have on hand.

The announcement came as part of a press conference releasing the Bank of England’s biannual Financial Stability Report, which calls the current outlook for financial stability “challenging.”

The report contained a fair amount of doom and gloom: The pound is at 30-year lows and still getting pummeled; foreign investment in real estate in the U.K. is way down and there’s global nervousness about investing in U.K. companies; and U.K. household debt is a growing problem, with lots of regular people spending more than they make.

Some of these problems, as Bank of England Governor Mark Carney pointed out, are not new since the Brexit vote, but the decision to leave the European Union means central bankers are now planning for years of continued instability.

In the short term, Carney focused on the decision to lower capital buffer requirements for banks.

“It means that three quarters of U.K. banks accounting for 90 percent of the stock of U.K. lending will immediately have greater flexibility to supply credit to U.K. households and firms,” he said in a Tuesday morning press conference.

He said the policy shift will raise lending capacity by 150 billion pounds.

The flip side is that this lowers the amount banks are required to set aside to cover potential losses if things go badly.

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