Belfast Telegraph

Bank of England's Alex Brazier warns lenders over 'spiral of complacency'

The Bank of England could take further steps to protect the UK economy amid signs high street banks are edging towards a "spiral of complacency" when it comes to consumer lending.

Alex Brazier, executive director of financial stability, has hinted that the Bank may ask lenders to raise their capital buffers even further come September if concerns over the growth of consumer debt persist.

In a speech to the University of Liverpool's Institute for Risk and Uncertainty, Mr Brazier said: " We have already, in recent months, taken steps to strengthen banks' defences against losses by raising the capital buffers they are required to hold on all their lending.

"And to make sure this defence line is kept robust in the face of rapid consumer credit growth, we are accelerating this year's test of banks' consumer credit loans.

"By September, we will have assessed whether the rapid growth has created any small gap in the line. If it has, we'll plug it."

Soaring inflation triggered by the Brexit-hit pound has put household spending power under sustained pressure since the start of the year, with the amount spent on credit cards increasing as disposable incomes fall.

The Bank has already raised concerns over surging levels of unsecured consumer borrowing on credit cards and car finance, which is rising by more than 10% a year and outstripping incomes.

Mr Brazier, who is also a member of the Bank's Financial Policy Committee, said lenders may become complacent during brighter economic times when losses on loans are low, causing lending standards to move "from responsible to reckless very quickly".

He said: "The sorry fact is that as lenders think the risks they face are falling, the risks they - and the wider economy - face are actually growing.

"Lenders have not entered, but they may be dicing with the spiral of complacency."

The Prudential Regulation Authority (PRA) has told lenders to prove they are not taking on too much risk by September as it tightens up scrutiny of the sector.

It follows a warning from Governor Mark Carney that lenders were "forgetting the lessons of the past", with the Bank's raising the alarm over signs of more lax lending controls and ballooning borrowing.

The PRA, which has the power to force firms to rein in lending, said earlier this month that it was "requesting evidence from all firms with material exposures to consumer credit" of how they are protected against risks of consumer arrears.

Firms will have until September to respond, when they will also see the stress tests for losses on consumer credit lending, which has been brought forward from November.

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