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28 November 2018

Financial Times: BoE stress test shows British banks able to withstand sharp recession

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British lenders would be able to withstand a global recession more severe than a disorderly Brexit, according to the results of a Bank of England stress test.

The BoE found that British banks would be able to keep lending to customers even if there were a major financial crisis, while continuing to pay billions of pounds in fines and compensation to address wrongdoing.

“The test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies that are more severe overall than the [2008] global financial crisis,” the BoE wrote in the introduction to the stress test results.

Nationwide, the building society, was the strongest performer. Under the stress test scenario, its common equity tier 1 (CET1) capital ratio — a key measure of balance sheet strength — fell from 30.4 per cent to 14.1 per cent, which was well above its 7.9 per cent requirement.

Santander UK also performed strongly, as did RBS — which was a laggard last year — while Asia-focused banks HSBC and Standard Chartered passed comfortably.

Lloyds was at the bottom of the pack, owing to its “largely UK centric business model”, which left it more exposed to falling house prices and higher unemployment. Barclays was also among the worst performers, mainly because of its large credit card business in the UK and the US, as well as its British mortgage and loan book.

However, the BoE declared that the outcome meant that “no bank was required to take action to improve its capital position as a result of the stress test”. [...]

Full article on Financial Times (subscription required)

Stress testing the UK banking system: 2018 results

Financial Stability Report and Stress Test results - November 2018

© Financial Times

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