Britain’s banks could cope with a “disorderly” Brexit without needing to curb lending or be bailed out by taxpayers, the Bank of England has revealed following its annual health check on lenders.
For the first time since it started ‘stress-testing’ banks in 2014, none of Britain’s major lenders would need to raise extra capital, the bank said.
The stress tests are primarily calculated on the basis of the amount of capital banks held at the start of 2017.
Barclay and Royal Bank of Scotland (RBS) failed the test on this basis, but do not need to raise extra capital now as they increased capital during the course of year, Reuters reported.
“The (Bank of England) ... judges that the banking system can continue to support the real economy, even in the unlikely event of a disorderly Brexit,” Governor Mark Carney said at a news conference.
The results will come as a partial relief to finance minister Philip Hammond, who is looking to sell £3 billion of public holdings of RBS shares during the next financial year to help reduce public debt.
HSBC, Lloyds Banking Group, Santander UK, Standard Chartered and the Nationwide Building Society all passed the test without reservations.
Britain’s economy has lost momentum this year as higher inflation - largely due to the fall in the pound after June 2016′s Brexit vote - eats into households’ disposable income.
Last week government forecasters sharply downgraded their outlook for the next few years, predicting annual growth of barely 1.5% - almost a full percentage point below Britain’s historic trend.
Britain is due to leave the European Union in March 2019, and the Bank of England’s (BoE) Financial Policy Committee reiterated that a “timely agreement” on an implementation period for transitional arrangements would reduce financial stability risks.
However, even if Britain crashed out of the EU, the BoE said the latest stress test suggested banks were strong enough to cope as it published its half-yearly Financial Stability Report.
Responding to the BoE announcement, RBS said it continued to make progress towards being a “stress resilient” bank. Barclays noted that it did not need to raise fresh capital.
The BoE said British and European Union lawmakers needed to pass new laws to ensure there was no disruption to 26 trillion pounds worth of cross-border derivative contracts and 36 million insurance contracts held by EU and British policyholders.
The BoE also said it was not clear if the banking system could cope easily with a disorderly Brexit if it came at the same time as a severe global recession and further substantial fines for financial misconduct at banks.