Bank of England stress test finds top 8 UK banks have enough capital
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[July 12, 2023] By
Huw Jones
LONDON (Reuters) -Britain's eight largest lenders have enough capital to
ride out a worse economic crisis than that seen in 2008, the Bank of
England (BoE) said on Wednesday, as the sector faces sharply rising
interest rates pummelling consumers and businesses.
The test checked if banks had enough capital to weather theoretical
shocks under a scenario which the BoE said was more severe than the
global financial turmoil of 2008 when British taxpayers had to bail out
several lenders.
The test also measured how well the lenders would cope with a global
rise in interest rates.
The eight banks account for 75% of lending in Britain.
"The UK economy and financial system have so far been resilient to
interest rate risk," BoE Governor Andrew Bailey said, though he noted
the full impact of higher interest rates had yet to be felt.
The stress tests incorporated persistently higher inflation in advanced
economies, rising global interest rates, deep recessions and higher
unemployment, as well as sharp falls in asset prices.
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"Major UK banks’ capital and liquidity positions remain robust and
profitability has increased, which enables them both to improve their
capital positions and to support their customers," the BoE said.
There was no common pass mark but each bank had to scale a bespoke
hurdle, with Barclays, Lloyds, HSBC, NatWest, Santander UK, Standard
Chartered, Nationwide Building Society and Virgin Money all showing no
capital inadequacies, the BoE said.
Bank shares rose strongly in response, with Virgin Money up 6.7% on the
day and Lloyds 2.8% higher. Shares for the other major British banks
were up around 1.4-1.6%.
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A worker cleans a Barclays logo outside
a bank branch in the financial district of London, Britain July 8,
2019. REUTERS/Simon Dawson/File Photo
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Bailey said that the soundness of the financial system meant that
banks were better able to pass higher interest rates to savers.
The central bank said it had decided to maintain its
counter-cyclical capital buffer for banks unchanged.
"This will help to ensure that banks have sufficient capacity to
absorb future shocks without unduly restricting lending," the BoE
said.
NatWest, Britain's biggest lender to small businesses, said the test
highlighted the group's "all weather" balance sheet.
Lloyds, Nationwide, HSBC and Standard Chartered also noted their
successful performance in the test.
The central bank said it was looking jointly with the finance
ministry at potential options for winding down small banks after
recent events in the United States where Silicon Valley Bank
collapsed and Britain had to engineer a takeover of its UK
subsidiary.
"Deposit outflows at some regional U.S. banks were large and rapid,
with digital banking technology and social media playing a role in
increasing the speed at which information was shared and deposits
withdrawn," the BoE said.
(Reporting by Huw JonesEditing by Sinead Cruise, Mark Potter and
Christina Fincher)
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