Lease Team

Banks pass Brexit stress test

28/11/2017

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The Bank of England said the latest invented scenario would involve banks losing £50 billion over a period of two years. There is no doubt that such a test would have seen a number of fails in previous years due to insufficient capital base.

Results from the test, while reassuring, have led the Bank of England to consider further measures, requiring firms to hold billions of pounds in additional capital. This is an acknowledgement that what now looks like an Armageddon scenario is actually outdone by real life turns of event. For example, estimates have been made as to the impact of growth in consumer debt, misconduct penalties, and vulnerabilities from (and in) countries like China. Values placed on these dangers may yet prove to be underestimates and the Bank of Englnd acknowledges that.

The FPC said that it "judges the UK banking system could continue to support the real economy through a disorderly Brexit."

"However, the combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test. In such circumstances, capital buffers would need to be drawn down substantially more than in the stress test and, as a result, banks would be more likely to restrict lending to the real economy."



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