Financial sector now ‘more stable’ says Bank of England

THE Bank of England (BoE) said today that the UK’s financial system has become “significantly” more stable over the past six months.

The BoE said that strategies such as quantitative easing (QE) and 0.5% interest rates had helped improve the situation.

The bank is spending £200bn under QE to boost lending in the banking sector.

Its comments are published in the latest edition of the bank’s bi-annual Financial Stability Report.

The report shows that banks have been able to increase profits and raise further external capital while reducing concers about potential future losses.

However, it does warn that the banks still need more time to recover from the financial crisis and that they are still vulnerable to “the risk of less than expected economic recovery”.

It wants commerical lenders to “take opportunities to strengthen their balance sheets, including by not distributing an excessive amount of profit” now that banking sector profits are “relatively buoyant”.

The bank also said that the root cause of the ‘credit crunch’ had to be tackled to prevent it happening again.

The Government’s Financial Services Bill, which aims to give the Financial Services Authority more powers to regulate the banking sector, is currently making its way through parliament.

The Financial Services Bill also requires major banks and other important financial firms to hold larger capital reserves and to prepare so-called ‘living wills’ to ensure they could be wound up in the case of failure, without putting the entire financial system at risk.