Britain's banks given clean bill of health in stress tests

Lloyd Doyle
November 28, 2017

The extreme scenario included a slump in both world and UK GDP, a dive in the value of the pound and house prices falling by a third.

The Bank first introduced the stress tests back in 2014 as it looked to ensure that the United Kingdom would not face the same issues it did following the last financial crash.

The test is created to ensure that banks are in possession of right tools - such as sufficient liquidity and relatively strong capital positions - to weather an economic storm.

Barclays and Royal Bank of Scotland failed the test on this basis, but do not need to raise extra capital now as they increased capital during the course of year.

The Bank of England published the results of its annual stress test of the UK's banking system on Tuesday morning, with all lenders passing for the first time since the introduction of stress testing in the United Kingdom in 2014.

In its annual stress test of the sector, the central bank said Tuesday that the country's biggest banks are "resilient" to a raft of adverse scenarios, including deep simultaneous recessions at home and overseas and hefty falls in the price of assets.

The test - the fourth annual assessment conducted by the BOE - found Britain's major banks were all resilient to a scenario more severe than the global financial crisis.

In the United Kingdom economy, the BoE modelled the effects of a sharp recession of more than -4% GDP.

On an worldwide basis the test also models a global slowdown of 2.4% of GDP from current levels.

The UK government will also be hoping that the results of the tests don't derail its plans to look at resuming the sell-off of the remainder of its 70% stake in RBS, even though it is likely to return a substantial loss.

Commercial lending collapses, leading to disaster in the property market.

Said its tests showed the banking system could withstand even the most disorderly Brexit scenario.

The FPC believes the stress tests will cover the macroeconomic risks associated with even the worst outcome for the United Kingdom economy.

Earlier this year Lloyds increased its impairment provisions in Q3 to £270m, a wise decision given the banks purchase of the MBNA credit card business from Bank of America. Nowhere was that more true than in Britain, where the government, then led by prime minister Gordon Brown, had to pump billions of pounds into both RBS and Lloyds to keep them afloat.

Britain's banks could cope with a "disorderly" Brexit without needing to curb lending or be bailed out by taxpayers, the Bank of England said on Tuesday after carrying out its annual health check on lenders.

Other reports by Iphone Fresh

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