The UK’s seven largest lenders – Barclays (BARC), Lloyds Banking Group (LLOY), Royal Bank of Scotland (RBS) among them – are sufficiently-capitalised to handle the simultaneous effects of a hard Brexit and major global recession, the Bank of England’s (BoE) annual stress test has found.
In a further sign that the sector’s capital buffers are adequate, the central bank ran the banks’ assets and balance sheets through a scenario in which global gross domestic product (GDP) falls by 2.6 per cent at the same time as the UK economy contracts by 4.7 per cent, interest rates balloon to 4 per cent, and unemployment more than doubles.
Although losses on corporate loans were found to be higher than previous war-games exercises, all seven banks’ common equity tier one (CET1) capital were enough to clear the minimum ‘hurdle’ rates set by the Financial Policy Committee (FPC), the arm of the central bank charged with identifying, monitoring and managing systemic risks in the financial system.