Section 4: Prospects for financial stability

Chart 4.1 Contributions to growth in lending to UK households and corporates Sources: Bank of England and Bank calculations. (a) Percentage change on a year earlier in the stock of sterling lending.

Chart 4.2 UK banks’ lending to selected euro-area countries(a)(b)(c) Sources: Bank of England, published accounts and Bank calculations. Shows the range of UK bank lending to sectors of selected euro-area economies. The sample of banks comprises Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland. (b) Claims data are to end-December 2010, adjusted for risk transfers. Excludes guarantees and derivatives. (c) Core Tier 1 capital data are to end-December 2010, except for Nationwide which are to 4 April 2011.

Chart 4.3 Breakdown of UK residential mortgages entering forbearance or in arrears(a) Source: FSA Prudential Risk Outlook, March 2011. (a) The arrears figures are as at December 2009. (b) Represents the number of changes made to mortgage contracts in the twelve months to March 2010 for forbearance purposes. Forbearance processes included are: capitalisation of existing arrears into the balance; a temporary or permanent transfer onto interest-only terms; term extensions; and reduced payments or payment holidays which do not accrue arrears.

Chart A Household secured lending spreads and flows(a)(b) Sources: Bank of England and Bank calculations. Spread based on average quoted rate on new 75% loan to value ratio tracker mortgages minus estimated bank marginal funding cost (calculated as the sum of three-month Libor plus a weighted average of the five-year CDS premia of the major UK lenders). (b) Three-month rolling average of lending flows.

Chart B Credit Conditions Survey: corporate credit costs(a) Source: Bank of England Credit Conditions Survey. Net percentage balances are calculated by weighting together the responses of those lenders who answered the question as to how the cost of credit provided to the sector overall changed in the past three months. A positive balance indicates reduced lending costs to businesses. (b) 2011 Q2 data are values expected by survey respondents.

Chart C Market functioning(a) Sources: Bank of America Merrill Lynch Global Research, Bloomberg, Dealogic, JPMorgan Chase & Co. and Bank calculations. Shading is based on a score that reflects, for unguaranteed debt, both issuance (relative to GDP) and spreads in primary markets and secondary markets, expressed as a number of standard deviations from average, using as much data as was available from January 1998. Updated to end-May 2011; recent months use 2011 Q1 GDP. (b) Insufficient data for UK CMBS secondary markets.

Chart 4.4 Value of the European ETF market Source: BlackRock.

Chart 4.5 Major UK banks’ and LCFIs’ leverage ratios(a)(b) Sources: Bank of England, published accounts and Bank calculations. The leverage ratio is defined as assets divided by capital. Assets are adjusted for cash items, tax assets, goodwill and intangibles. Capital includes total shareholders’ equity adjusted for minority interest, preference shares, goodwill and intangibles. Assets are also adjusted on a best-efforts basis to achieve comparability between US GAAP and IFRS with respect to derivatives and off balance sheet vehicles. (c) Total peer group assets divided by total peer group capital. (d) Excludes Northern Rock. Data for The Co-operative Bank are used for Co-operative Financial Services. Pro-forma data are used for RBS from 2007 to 2009. (e) Revisions to US GAAP accounting rules on consolidation from 1 January 2010 are applied to end-2009 data giving a clearer measure of leverage.

Chart 4.6 Contributions to the change in major UK banks’ core Tier 1 capital ratios Sources: Published accounts and Bank calculations.