BoE liabilities survey: Capital levels driven up by regulatory pressures, but reduced risk appetite pushes down demand

The Bank of England has released its liabilities survey for the second quarter of 2013 (conducted between 10 and 31 May 2013).

UK banks and building societies’ total funding volumes fell in the three months to the end of May, with a significant rise in retail deposit volumes more than offset by a dramatic reduction in volumes of wholesale market funding. It is expected total funding will fall again in the third quarter of the year. The cost of raising funds, meanwhile, continued to fall and are expected to fall again over the following three months.

Lenders also reported a significant increase in total capital levels and expect another rise in the third quarter, citing positive contributions from an improved "balance of profits, losses, deductions and charges related to banks’ UK and non-UK operations" and regulatory drivers.

However, demand for capital among lenders has been driven down by a reduced appetite for risk (and a fall in the riskiness of their assets) and improvements in economic outlook. These drivers are expected to continue on into the third quarter.