Tuesday, July 25, 2017

The Looming Credit Crisis

Outstanding car loans, credit card balance transfers and personal loans have increased by 10% over the past year, the Bank's financial stability director Alex Brazier said. In contrast household incomes have risen by just 1.5%, he said.
Brazier, in a speech to the University of Liverpool's Institute for Risk and Uncertainty, added that this increase in debt was "dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy".
He warned that High Street banks were at risk of entering "a spiral of complacency" about mounting consumer debt levels.
"Lending standards can go from responsible to reckless very quickly. 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," Mr Brazier added.
Last month, the Bank of England told banks to beef up their finances against the risk of bad loans. They were told to set aside £11.4bn in the next 18 months in case future economic shocks meant some borrowers could not keep up their repayments.
In June, Bank of England governor Mark Carney said lenders appeared to have forgotten some of the lessons of the financial crisis.

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