Economic stress test shows UK Banks in strong position

For the first time since the Bank of England launched its stress tests in 2014, the Bank of England have found that no bank needs to strengthen its capital position as a result of the stress test. The 2017 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs.

Governor of the Bank of England, Mark Carney, said that the UK’s banks could cope if Britain leaves the European Union in a “disorderly Brexit” in 2019.

For the first time since the financial crisis, all of the UK’s biggest lenders have passed the Bank’s stress tests.

In the event of negative economic conditions, unlike the state of affairs in 2008, the 2017 stress tests have found that the top seven UK banks could continue to lend money to support the UK economy.

Bank governor Mark Carney said they would be able to, even in “the unlikely event” of no deal when Brexit happens.

He also added that the growth of consumer credit in the UK had created “pockets of risk”.

The economic scenario in the test is more severe than the global financial crisis. Significant improvements in asset quality since the crisis mean that the loss rate on banks’ loans in the stress test is the same as in the financial crisis.

In the test, banks incur losses of around £50 billion in the first two years of the stress. This scale of loss, relative to their assets, would have wiped out the common equity capital base of the UK banking system ten years ago. The stress test shows these losses can now be absorbed within the buffers of capital banks have on top of their minimum requirements.

Source: The Bank of England