The Bank of England announced that the 8 largest banks, which give 75 percent of loans, passed the stress test.
The Bank of England (BOE) said all eight of Britain’s largest banks have passed the latest stress test, which examines their resilience to a severe economic crisis.
Firms will have enough capital to continue lending in the event of a shock to the economy, including the housing market crash, rising unemployment and interest rates rising as much as 6 percent, according to results released Wednesday.
“The UK banking system is capable of supporting households and businesses even when economic and financial conditions are significantly worse than expected,” the BOE said in a statement. works” were used.
Tested banks provide loans to 75 percent of the country’s economy
Banks Barclays Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Nationwide Building Society, NatWest Group Plc, British arm of Banco Santander SA, Standard Chartered Plc and Virgin Money UK Plc were tested this year. These banks provide about 75 percent of loans to the UK economy.
The BOE said banks have high-quality liquid assets with a market value of £1.4 trillion ($1.8 trillion), and about two-thirds of those assets are in cash or central bank reserves. This means that banks will have ample resources to continue lending should liquidity in the markets come under pressure.
Testing began in September after a six-month delay following Russia’s invasion of Ukraine.
The scenario where the policy rate rises to 6 percent has been tested
One element of this scenario is happening right now, as the stress test involved a gradual drop in gold of 3.5 percent after the UK policy rate rose to 6 percent. Money markets are pricing in that the BOE will raise rates up to 6.5 percent based on interest rate swaps based on policy meeting dates.
The rate was priced at 5 percent a few months ago, and if it does, it will be the highest interest rate since 1998.
On the other hand, the bank also examined how well the UK could cope with shocks such as a 5% contraction in national income, unemployment more than doubled to 8.5 per cent, and residential property prices falling 31 per cent.
All of the banks had previously concluded that they could pass a stress test carried out by the BOE in December 2021, which involved a double-dip recession and years of societal adjustment.
Following the financial crisis, the Bank of England began regular tests in 2014 to check whether the sector had enough capital to withstand economic difficulties.