You are here: Home - Mortgages - Remortgage - News -

Stress tests show UK banks ‘prepared and strong enough’ to weather disorderly Brexit – BoE

Written by:
Mark Carney may be predicting tough times in the event of a no deal Brexit, but the results of November stress tests from the Bank of England show the UK’s banking system could withstand bigger shocks than the global credit crisis.

The report also said: “UK banks are prepared and strong enough to continue to serve UK households and businesses even through a disorderly Brexit.”

The stress test scenario included UK GDP falls of 4.7%, an unemployment rate of 9.5% and residential property price falls of 33% and 40% for commercial. It also includes a sudden loss of investor appetite for UK assets, a 27% fall in Sterling exchange rate index and Bank Base Rates of 4%, a far more extreme scenario than 2008/9.

The report said the work all major UK banks have done on strengthening capital positions mean Tier 1 capital ratios are three times higher than before the credit crunch.

The 2018 stress test is the first to be conducted under a new accounting standard, International Financial Reporting Standard 9 (IFRS 9).

Brexit pressures 

Since the EU referendum in 2016, the FPC and other authorities have identified risks of disruption to the financial system and the regulator has reviewed a disorderly Brexit scenario, with no deal and no transition period, that leads to a severe economic shock.

Based on a comparison of this scenario with the stress test, the FPC judges that the UK banking system is strong enough to continue to serve UK households and businesses.

The ‘worst case’ scenario of a cliff-edge Brexit included the sudden imposition of trade barriers with the EU; loss of existing trade agreements with other countries; severe customs disruption; a sharp increase in the risk premium on UK assets; and negative spill overs to wider UK financial markets.


On funding, the central bank also judged the major UK banks have ‘sufficient liquidity to withstand a major market disruption.’

It said: “Since the financial crisis, major UK banks have substantially reduced their reliance on wholesale funding. At group level, they hold more than £1trn of high-quality liquid assets. They are able to withstand more than three months of stress in wholesale funding markets.

“As a result of supervisory actions and their own prudent risk management, major banks have aligned the currency of their liquid assets to that of their maturing wholesale funding. They can now withstand many months without access to foreign exchange markets.

“In addition, banks have pre-positioned collateral at the Bank of England that would allow them to borrow a further £300bn.”

The bank has also played down the risk of leveraged lending to businesses as UK bank’s holdings and aggregate exposures are ‘very small.’

Related Posts

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get?

News and updates on everything to do with coronavirus and your personal finances.

Everything you need to know about being furloughed

If you’ve been ‘furloughed’ by your company, here’s what it means…

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Which companies face demotion in the latest FTSE 100 reshuffle?

Royal Mail may drop out of the FTSE 100 in the next FTSE reshuffle on the 4th December.