FSA: Prudential Risk Outlook
March 17, 2011
The FSA has published the Prudential Risk Outlook ("PRO"), which sets out its assessment of macro economic and financial trends as a context for its micro-prudential regulation and supervision of firms.
Over the past two years the capital and liquidity position of the UK banks has improved significantly, increasing resilience to shocks. But the PRO describes still important risks to financial stability. It highlights in particular:
- incomplete progress in deleveraging required to create a less vulnerable system;
- progress towards improved global capital and liquidity standards and the need, as that progress is achieved, to understand possible risk transfers and migrations to other parts of the financial system;
- a number of important areas of credit risk, relating in particular to vulnerable euro-zone countries, to commercial real estate, and potentially, in emerging markets facing rapid property price inflation; and
the risks created by a sustained period of low interest rates which could crystallise as and when interest rates return to more normal levels.