UK banking system able to withstand contraction of more than a third of economy, BoE says

Monday December 13, 2021 5:23 pm

The Bank said that even in a scenario where the UK economy contracts by more than a third and house prices plunge 33%, the banking sector’s core capital ratio, a measure of strength of a bank’s balance sheet, remains above regulatory requirements (photo by Léon Neal / Getty Images)

Britain’s banking system is capable of weathering a severe economic storm, according to the Bank of England’s latest review of the health of Britain’s largest lenders.

The Bank said that even in a scenario where the UK economy contracts by more than a third and house prices plunge 33%, the banking sector’s core capital ratio, a measure of the strength of a bank’s balance sheet remains above the minimum threshold.

“Our latest stress test shows that the banking sector is withstanding even very difficult economic scenarios,” the bank said.

All of the banks included in the latest assessment meet the Bank’s minimum capital ratio requirement of 7.6 percent.

The sector’s overall capital ratio drops to a minimum of 10.5 percent.

The world’s largest lenders have been subjected to stricter regulations to avoid the pitfalls that sparked the global financial crisis in 2008.

As a result, UK banks have built up significant levels of capital buffers, meaning they are better prepared for severe economic shocks.

The old lady’s latest stress test was significantly worse than expected in her monetary policy report.

The stress test included a three-year contraction of the UK economy of 37%, UK residential and commercial property prices plummeting by around 33% and unemployment reaching 11.9%.

UK lenders were able to survive this scenario thanks to “a strong starting position …

More soon.

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