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<p>A key part of the government’s economic policy objective is to preserve and enhance
the stability of the UK’s financial system. This is reflected in the remit of the
Financial Policy Committee (FPC) at the Bank of England, which is responsible for
identifying, monitoring and taking action to remove or reduce systemic risks.</p><p>
</p><p>There is little sign of dividend recapitalisations further increasing the leverage
of borrowers in 2020 to levels above post-Global Financial Crisis average.</p><p>
</p><p>Dividend recapitalisations are a small part of the broader leveraged loan market.
They’ve accounted for slightly under 25% of September 2020 issuances to date. All
the dividend recapitalisation issuances from July to September 2020 have been from
US corporates.</p><p> </p><p>In addition, the Bank of England has ensured that the
major UK banks hold enough capital to withstand losses on their leveraged loan portfolios
commensurate with loss rates more severe than those experienced in the 2008 Global
Financial Crisis.</p><p> </p><p>Given the US-focussed nature of the market, the Bank
is also active in international discussions related to banks and non-banks. The Bank
remains a key contributor to the work of the Financial Stability Board, including
their analysis of leveraged loans.</p>
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