British banks will be able to withstand simultaneous recessions in the UK and global economies, a stress test by Bank of England has found.
All the seven British banks and building societies cleared the stress test. The test evaluated the performance of the financial institutions against a global financial crisis combined with plummeting asset prices.
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In a statement, Bank of England said: “Despite facing loss rates consistent with the global financial crisis, the major UK banks’ aggregate CET1 capital ratio after the stress would still be twice its level before the crisis.
“All participating banks remain above their risk-weighted CET1 capital and Tier 1 leverage hurdle rates and would be able to continue to meet credit demand from the real economy, even in this very severe stress.”
Why stress test?
A stress test, usually conducted by the regulators, determines a bank’s resilience against market shocks. The exercise enables to identify the banks which have low capital buffers and vulnerable to failures during downturns.
Last month, European Banking Authority (EBA) conducted an EU-wide stress test on 48 banks.
Though none of the lenders failed in the EU test, British banks Barclays and Lloyds were among the worst performers.
Bank of England test details:
In the test conducted by Bank of England, all banks ended with adequate capital buffers above the threshold level.
The test included all British banking majors including HSBC, Barclays, Lloyds, RBS, Santander UK and Standard Chartered.
The stress test found that the banks will face a collective loss of £170bn ($218bn) during crises, reported Reuters.
However, they will have enough buffers to maintain lending services.
