Bank of England has voiced concerns over the increasing level of consumer credit in the UK, and has instituted various restrictions on banks regarding capital buffers, mortgage lending requirements and stress testing.
Levels of consumer debt have been rising rapidly, well beyond the rise in income, and bank lending has facilitated it’s growth. Since last April, personal lending has increased by 7% and credit card loans have risen by 9%.
The central bank expressed concerns in its most recent financial stability report that lends have grown used to benign economic conditions, and thus have loosened their lending standards. The Bank of England’s Financial Policy Committee warned that though current risks to the financial system remains low, banks should still remain watchful for shocks that could be caused by economic downturns.
It has asked banks to increase their capital by £11.4 billion over the next 18 months, thus having a greater buffer if an economic downturn causes a shock to occur, and …