IMF publishes UK report: IMF has published the staff report and informational annex resulting from the discussions held with the UK further to Article IV of the IMF's Articles of Agreement. On financial sector policies and broader structural reforms, IMF notes that:
- UK banks will likely have to raise further capital in the medium term;
- UK banks face new risks from various sources;
- the strategy for returning RBS to profitability, consisting of the creation of an internal bad bank and focusing RBS's on the UK, is appropriate but subject to execution risks;
- stress tests and strengthened supervision should be extended beyond major banks and include shadow banking activity;
- reforms to the BoE's Sterling Monetary Framework could increase banks' risk appetite. IMF also suggests increasing the level of the BoE's capital, as liquidity support that involves State Aid would trigger the bail-in provisions of the Bank Recovery and Resolution Directive; and
- it is important to ensure measures to address the too-big-to-fail problem do not stifle market making.
(Source: Article IV Staff Report)