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Losses on corporate exposures are higher than in previous tests, reflecting some deterioration in asset quality and a more severe global scenario. Despite this, and weakness in banks’ underlying profitability (which reduces their ability to offset losses with earnings), all seven participating banks and building societies remain above their hurdle rates. The major UK banks’ aggregate CET1 capital ratio after the 2019 stress scenario would still be more than twice its level before the crisis.
Banks’ resilience relies in part on their ability in stress to cut dividend payments, employee variable remuneration, and coupon payments on additional Tier 1 instruments. If banks had not cut their distributions during the stress, in aggregate they would not have met the 2019 ACS hurdle rate. Investors should be aware that banks would make such cuts as necessary if a stress were to materialise.
Major UK banks’ capital ratios have remained stable since year end 2018, the starting point of the 2019 stress test. At the end of 2019 Q3, their CET1 ratios were over three times higher than at the start of the global financial crisis. Major UK banks also continue to hold sizeable liquid asset buffers.
Full stress testing results on BoE
Effectiveness of stress-testing frameworks on BoE