Parliamentary Search

Written question asked by Baroness Bennett of Manor Castle (Green Party) on Friday, 18 September 2020, in the House of Lords. It was due for an answer on Friday, 2 October 2020. It was answered by Lord Agnew of Oulton (Conservative) on Thursday, 1 October 2020 on behalf of the Treasury.

Investment Income

Question

To ask Her Majesty's Government what assessment they have made of the impact that dividend recapitalisations have on financial security (1) nationally, and (2) internationally.

Answer

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.

There is little sign of dividend recapitalisations further increasing the leverage of borrowers in 2020 to levels above post-Global Financial Crisis average.

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.

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.

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.

Secondary information

Type
Written question
Reference
HL8266
Session
2019-21
Subjects
Investment income
Link
View this Written question on www.parliament.uk