"Within a benign overall domestic credit environment, there is a pocket of risk in the rapid growth of consumer credit."
The Bank's Financial Policy Committee said that "within a benign overall domestic credit environment, there is a pocket of risk in the rapid growth of consumer credit".
It is concerned that lenders "have been underestimating the losses they could incur in a downturn" and has therefore revised its analysis of credit losses that banks could incur in a deep recession encapsulated in the 2017 annual stress test.
The FPC judged that in the first three years of the 2017 stress test scenario, the UK banking system would incur credit losses on UK consumer loans of around £30 billion, or 20% of UK consumer credit loans.
The loss rate in the 2017 stress test scenario is significantly higher than the loss rate of 13% of consumer loans in the 2016 stress test for major UK banks.
The stress test results will be published in November, after which new regulatory capital buffers will be set for individual firms, allowing them to absorb losses on consumer lending.
The FPC also expects that banks will begin to factor these market-wide levels of stressed losses on consumer credit into their overall lending and capital plans.
