The Bank of England published its financial stability report on Tuesday and it’s full of useful charts and graphs about threats to the UK’s banking system.
On the whole, the financial world is looking more stable now than during the Summer, which was dominated by Greek political instability and market crashes in China.
But lots of risks still remain and some, like the threat of a cyber attack or a downturn in Asian economies, worry the Bank of England more than ever.
Lending to people who buy houses specifically to let the houses out is rocketing.
The BOE has long been concerned about buy-to-let, because landlords are seen as more vulnerable to an increase in mortgage rates than owner-occupiers.
Here’s the BOE:
Strong growth in buy-to-let lending, and the potential for underwriting standards to slip, may have implications for financial stability.
Historical ties with Asia mean UK banks are the most exposed to a slowdown in China and Hong Kong.
UK banks have strong ties with China. This is great when the country is growing strongly but can pose a risk when there’s a downturn.
The BOE said:
Crystallisation of these risks could pose a threat to UK financial stability, particularly if shocks to asset prices were amplified by fragile market liquidity. This vulnerability came to the fore in August 2015, when an episode of intense volatility in some markets materialised against the backdrop of concerns among market participants about a possible slowdown in economic growth in China.
The threat of a cyber attack on the financial system is increasing.
Cyber attacks on financial institutions are costly to protect against and dangerous if they succeed. The central bank is trying to encourage lenders to do more to protect themselves.
The BOE said:
The risk from cyber attack has grown over time, reflecting increased use of technology in financial services. Firms need to build their resilience to cyber attacks, develop the ability to recover quickly from attacks, and ensure effective governance — which means viewing cyber risk as a strategic priority, rather than a narrow ‘technology’ issue.
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