Latest news with #financialStability
Yahoo
17-07-2025
- Business
- Yahoo
Exclusive-Bank of England scrutinizes lenders for dollar risk amid Trump worries, sources say
By Stefania Spezzati, Jesús Aguado and Lawrence White LONDON (Reuters) -The Bank of England has asked some lenders to test their resilience to potential U.S. dollar shocks, three sources said, the latest sign of how the Trump administration's policies are eroding trust in the U.S. as a bedrock of financial stability. As the leading currency for global trade and capital flows, the U.S. dollar is the lifeblood of global finance. However, President Donald Trump's break from long-standing U.S. policy in areas such as free trade and defence has forced policymakers to consider whether the emergency provision of dollars in times of financial stress can still be relied on. Following similar demands from European supervisors, the Bank of England, which oversees banks in the City of London financial hub, has requested that some lenders assess their dollar funding plans and the degree to which they depend on the U.S. currency, including for short term needs, one of the people told Reuters. In one instance, one global bank based in Britain was asked in recent weeks to run stress tests internally, including scenarios where the U.S.-dollar swap market could dry up entirely, another of the sources said. The BoE's supervisory arm, the Prudential Regulation Authority (PRA), made the requests individually to some of the banks, the person added. No bank could withstand such a shock for more than a few days, according to one of the sources, given the dominance of the dollar in the global financial system and lenders' dependence on it. Should dollar borrowing become harder to obtain and more expensive for banks, it could hamper their ability to carry on meeting demands for cash. Ultimately, a bank that struggles to gain access to dollars could fail to meet depositor requests, undermining confidence and triggering further outflows. While this scenario is seen as extreme and unlikely, regulators and banks are no longer taking dollar access for granted. A spokesperson for the Bank of England declined to comment for this article. Representatives for the biggest UK banks with international businesses including Barclays, HSBC and Standard Chartered also declined to comment. Global banks have significant dollar exposure in their balance sheets, making them vulnerable to potential funding shocks. While the U.S. Federal Reserve has said that it wants to continue to make dollars available in the financial system, Trump's policy shifts have prompted European allies to reexamine their dependence on Washington. Meanwhile, Trump's repeated criticism of Fed chair Jerome Powell and reports the central bank chief may get fired are raising concerns of a loss of independence at the Fed and the repercussions on the dollar. The multi-trillion-dollar swap market is a critical part of the international financial system used by firms including banks to exchange other currencies for dollars to manage liquidity needs across their global networks. According to a study by the Bank for International Settlements, at the end of 2024 the notional value of currency derivatives globally was $130 trillion, 90% of which involved the U.S. dollar. A typical day sees almost $4 trillion in new FX swap contracts, according to BIS. Global banks can tap U.S. dollar deposits to withstand temporary shortfalls, one of the sources said. But regulators worry that international banks remain exposed to dollar risk, one of the people said. One of the sources told Reuters that bank leaders are particularly concerned about whether the Fed would support a mid-sized non-U.S. bank if it were to run into dollar shortage issues, where, in the past, such backing was assumed as guaranteed. The Fed has lending facilities with the European Central Bank, Bank of England and other major counterparts to alleviate shortages of the global reserve currency and to keep financial stress from spilling over into the United European central banking and supervisory officials for months have been questioning whether they can still rely on the Fed, as Reuters has previously reported. ECB supervisors have since asked some of the region's lenders to assess their need for U.S. dollars in times of stress, as they game out scenarios in which they cannot rely on tapping the Federal Reserve under the Trump administration. Earlier in June, the Swiss National Bank warned that "some banks may also face the risk of liquidity shortfalls in foreign currencies" in their balance sheets. The BoE has in the past asked banks how they would ensure a supply of dollars during times of stress, as in a 2019 system-wide check on banks' liquidity during a crisis, but the renewed focus on the U.S. currency showed how Trump's actions have revived such concerns. Reuters couldn't establish whether dollar shocks would be part of the stress test for the industry which the BoE runs every other year and whose results are expected later in 2025. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
10-07-2025
- Business
- Reuters
Bank of Korea holds interest rates steady, as expected
SEOUL, July 10 (Reuters) - South Korea's central bank held interest rates steady on Thursday, in line with expectations, as it steered a cautious path amid concerns about financial stability risks stemming from rising household debt and economic pressure from U.S. tariffs. The Bank of Korea's seven-member monetary policy board voted to keep its benchmark interest rate (KROCRT=ECI), opens new tab unchanged at 2.50%, an outcome expected by all 33 economists in a Reuters poll. Governor Rhee Chang-yong will hold a press conference at 0210 GMT, which will be livestreamed via YouTube.
The Independent
09-07-2025
- Business
- The Independent
UK workforce exposed if global trade war intensifies, Bank warns
Trade tariffs could increase the risk of some businesses falling behind on loans, while a high proportion of the UK workforce is in sectors more exposed to global shocks, the Bank of England has warned. Households and businesses nonetheless remain resilient, and the UK banking system is equipped to support them even if conditions significantly worsen, the Bank's Financial Policy Committee (FPC) said in its latest report. The FPC said there was a high degree of unpredictability about how global trade will evolve, with US President Donald Trump hiking tariff rates in April but negotiations with other countries over possible trade deals ongoing. Conflict in the Middle East has also raised the risk of energy prices spiking, particularly if the supply of oil and gas were disrupted, it found. This could particularly impact businesses that are more reliant on financing linked to global financial markets, which have faced turbulence in recent months. 'The potential for much higher trade tariffs increases the likelihood of corporate default in the most exposed sectors, and losses for their lenders,' the FPC's Financial Stability Report read. The outlook for the UK is weaker and more uncertain than it was in November, when the committee previously produced a report, it said. An escalating trade war could weigh on UK businesses should global consumer demand weaken, lending conditions tighten, or reduced availability of funding causes firms to slow down investment. 'Further shocks could particularly impact firms in sectors dependant on demand from the US market, such as manufacturing,' the report read. These sectors, as well as others like retail, are more vulnerable to a drop in consumer demand and are less able to recover earnings by raising prices. Analysis for the Bank suggests that firms in sectors likely to be more impacted by the global trade shock, either directly or indirectly, account for around 60% of UK employment. However, the FPC concluded that despite pockets of vulnerability, UK businesses would typically be able to pay their debts even in the face of further global volatility such as lower demand and supply. Furthermore, the report found that the UK banking system has the capacity to support households and businesses even if economic and business conditions became substantially worse than expected. Meanwhile, the committee warned that intensifying geopolitical tensions could raise the risk of cyber attacks around the world. It said this was a 'global challenge' but that UK financial firms were generally prepared to deal with cyber incidents.
Yahoo
06-07-2025
- Business
- Yahoo
Buy now, pay later loans will now affect US credit scores – what does that mean for consumers?
A new change to buy now, pay later loans means borrowers' credit scores may see a change, which has worried some users of the loans. 'I have a feeling that I'm just not going to have as much access to spending power and zero or really low APR rates,' said Nicole Nitta, a 31-year-old Las Vegas resident, who uses BNPL and shared that she already does not have great credit. Fico, the credit scoring company used by most US lenders, announced on 23 June that they would include BNPL loans, which play 'an increasingly important role in consumers' financial lives', to help lenders more 'accurately evaluate credit readiness'. Related: 'How did I get approved for $30,000?': is buy now, pay later headed for a fall? For users of companies like Affirm, Afterpay and Klarna, the new calculation could benefit them because it allows them to build their credit – if, of course, they pay back the loans on time, experts say. Nitta first used BNPL for essentials in 2021, like non-perishable food items. She was out of work and 'basically living off of savings', she said. Now, working as an office manager for a private therapy practice and studying marriage and family therapy, Nitta is more stable financially but has significant student loan debt. She has since used BNPL for Christmas gifts and dishware when she moved into a new apartment, but said she always makes her payments on time. Ted Rossman, a senior industry analyst at the financial site Bankrate, says: 'if you're using buy now, pay later responsibly,' like Nitta, 'I would argue [the change] should help you as a steppingstone to improve your credit, and maybe it helps you get your first credit card or car loan. 'The main downside is if it dings you because you're paying late or racking up too much debt. I would say that's a fair consequence, because that is what happens on credit cards and other products,' he added. Companies like Affirm, Afterpay and Klarna were founded more than a decade ago, but their usage expanded significantly during the Covid-19 pandemic. These companies provided $180m in loans totaling more than $24bn in 2021, an almost tenfold increase from 2019, according to the Consumer Financial Protection Bureau. Fumiko Hayashi, a vice-president at the Federal Reserve Bank of Kansas City who conducts economic research on payments, noted that the change was due to a shift from purchasing in stores to buying online – in addition to an economic downturn during the pandemic. A typical BNPL loan allows consumers to divide a $50 to $1,000 purchase into four interest-free instalments. If a borrower does not make the required payments, then the lender charges them a late fee. Lenders also charge transaction fees to merchants. BNPL is most popular among people ages 33 and under, who represented 70% of borrowers of such loans in 2022, according to the financial protection bureau. Hayashi noted that a downside for the younger users is 'if they keep using BNPL only and they don't use a credit card at all, they cannot build credit history'. With Fico's change, using BNPL responsibly could be beneficial for some younger users with no previous credit history – but less so for those not as responsible. For most users, Fico and Affirm say, including BNPL data in credit reports produced higher scores or no score changes – a finding in a year-long report released in February that looked at 500,000 consumers. Still, there are people who could be hurt by Fico using BNPL data. People with sub-prime or deep sub-prime credit scores obtained more than 60% of new BNPL loans from 2021 to 2022, according to the financial protection bureau. And 24% of BNPL borrowers were late making a payment in 2024, a 6% increase from the prior year, according to the Federal Reserve. Among people who make $25,000 or less, the rate increased from 31% to 40%. Notably, BNPL access 'significantly reduces the sensitivity of spending relative to income', according to a Harvard Business School report. 'This effect is concentrated among individuals likely to be liquidity constrained, specifically, lower-income users and users without credit cards,' the report notes. Becca, a 26-year-old tech worker in New York who declined to use her last name, said she used BNPL for things like pricier beauty products – including a Chanel perfume. She said she might 'spend like 80 bucks this month on it and make two separate $40 payments, and then next month, I pay off the rest'. While the payment option has helped her, she is concerned about companies like DoorDash offering BNPL for minor purchases like a pizza delivery. 'It's just encouraging poor spending behavior from young people,' Becca said. 'All these items build up because you're using it again and again and again. You don't feel like you're spending a lot of money.' It may be some time before the economy feels the impact of the new credit score calculation, Rossman said. While Fico stated that it would make the new scores available in fall 2025, most lenders continue to use a credit score model from 2009, (despite Fico since releasing new versions). 'Change comes relatively slowly in the credit scoring world, so even if this becomes available in the fall, that doesn't mean everybody is going to be using it right away,' said Rossman. 'It's kind of like your phone. For instance, Apple has the iPhone 16, but a lot of people are still using the 15 or the 14 or even older models. Credit scoring works the same way.' Sign in to access your portfolio
The Guardian
05-07-2025
- Business
- The Guardian
Buy now, pay later loans will now affect US credit scores – what does that mean for consumers?
A new change to buy now, pay later loans means borrowers' credit scores may see a change, which has worried some users of the loans. 'I have a feeling that I'm just not going to have as much access to spending power and zero or really low APR rates,' said Nicole Nitta, a 31-year-old Las Vegas resident, who uses BNPL and shared that she already does not have great credit. Fico, the credit scoring company used by most US lenders, announced on 23 June that they would include BNPL loans, which play 'an increasingly important role in consumers' financial lives', to help lenders more 'accurately evaluate credit readiness'. For users of companies like Affirm, Afterpay and Klarna, the new calculation could benefit them because it allows them to build their credit – if, of course, they pay back the loans on time, experts say. Nitta first used BNPL for essentials in 2021, like non-perishable food items. She was out of work and 'basically living off of savings', she said. Now, working as an office manager for a private therapy practice and studying marriage and family therapy, Nitta is more stable financially but has significant student loan debt. She has since used BNPL for Christmas gifts and dishware when she moved into a new apartment, but said she always makes her payments on time. Ted Rossman, a senior industry analyst at the financial site Bankrate, says: 'if you're using buy now, pay later responsibly,' like Nitta, 'I would argue [the change] should help you as a steppingstone to improve your credit, and maybe it helps you get your first credit card or car loan. 'The main downside is if it dings you because you're paying late or racking up too much debt. I would say that's a fair consequence, because that is what happens on credit cards and other products,' he added. Companies like Affirm, Afterpay and Klarna were founded more than a decade ago, but their usage expanded significantly during the Covid-19 pandemic. These companies provided $180m in loans totaling more than $24bn in 2021, an almost tenfold increase from 2019, according to the Consumer Financial Protection Bureau. Fumiko Hayashi, a vice-president at the Federal Reserve Bank of Kansas City who conducts economic research on payments, noted that the change was due to a shift from purchasing in stores to buying online – in addition to an economic downturn during the pandemic. A typical BNPL loan allows consumers to divide a $50 to $1,000 purchase into four interest-free instalments. If a borrower does not make the required payments, then the lender charges them a late fee. Lenders also charge transaction fees to merchants. BNPL is most popular among people ages 33 and under, who represented 70% of borrowers of such loans in 2022, according to the financial protection bureau. Hayashi noted that a downside for the younger users is 'if they keep using BNPL only and they don't use a credit card at all, they cannot build credit history'. With Fico's change, using BNPL responsibly could be beneficial for some younger users with no previous credit history – but less so for those not as responsible. For most users, Fico and Affirm say, including BNPL data in credit reports produced higher scores or no score changes – a finding in a year-long report released in February that looked at 500,000 consumers. Still, there are people who could be hurt by Fico using BNPL data. People with sub-prime or deep sub-prime credit scores obtained more than 60% of new BNPL loans from 2021 to 2022, according to the financial protection bureau. And 24% of BNPL borrowers were late making a payment in 2024, a 6% increase from the prior year, according to the Federal Reserve. Among people who make $25,000 or less, the rate increased from 31% to 40%. Notably, BNPL access 'significantly reduces the sensitivity of spending relative to income', according to a Harvard Business School report. 'This effect is concentrated among individuals likely to be liquidity constrained, specifically, lower-income users and users without credit cards,' the report notes. Becca, a 26-year-old tech worker in New York who declined to use her last name, said she used BNPL for things like pricier beauty products – including a Chanel perfume. She said she might 'spend like 80 bucks this month on it and make two separate $40 payments, and then next month, I pay off the rest'. While the payment option has helped her, she is concerned about companies like DoorDash offering BNPL for minor purchases like a pizza delivery. 'It's just encouraging poor spending behavior from young people,' Becca said. 'All these items build up because you're using it again and again and again. You don't feel like you're spending a lot of money.' It may be some time before the economy feels the impact of the new credit score calculation, Rossman said. While Fico stated that it would make the new scores available in fall 2025, most lenders continue to use a credit score model from 2009, (despite Fico since releasing new versions). 'Change comes relatively slowly in the credit scoring world, so even if this becomes available in the fall, that doesn't mean everybody is going to be using it right away,' said Rossman. 'It's kind of like your phone. For instance, Apple has the iPhone 16, but a lot of people are still using the 15 or the 14 or even older models. Credit scoring works the same way.'
