For the first time, all seven of the UK’s major banks have passed the financial stress tests introduced by the Bank of England (BoE) to see if lenders had to sufficient reserves to cope with another financial crisis.

BoE confirms banks passed stress tests

Announcing the results of the annual tests, Mark Carney, governor of the Bank of England, said the major banks would even be able to cope “in the unlikely event of a disorderly Brexit”.In last year’s tests, Barclays and RBS were deemed to have insufficient reserves but have now improved their financial positions, the BoE found. Lloyds, HSBC, Santander, Nationwide and Standard Chartered passed the tests last year and this.The tests are based on a ‘worst case’ crash scenario where house prices would fall by a third, interest rates would rise from the current 0.5 per cent to four per cent in less than two years, and the unemployment rate would surge from its current 4.3 per cent to 9.5 per cent.

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UK banks moving past post-crisis weaknesses

Michael Snapes, financial services director at PwC, said, “There is some comfort to be had in the knowledge that the UK banking system is strong enough to withstand a severe economic deterioration. The results suggest that the major UK banks may finally be emerging fully from their post-crisis downturn.”Ewen Stevenson, RBS’s chief financial officer, commented, “We continue to make progress towards the stress-resilient bank we aspire to be and 2017 represented another year of material improvement.“Until we have resolved our remaining major legacy conduct issues and non-core portfolio interests, we will continue to show stress test results weaker than our long term targets.”In a statement, Barclays said, “Barclays was not asked to submit a revised capital plan by the Bank of England in light of the steps already taken during 2017.”

EU-UK regulation to mitigate Brexit

The BoE Financial Policy Committee said that, to mitigate the impact of Brexit, there needed to be a clear EU-UK regulatory framework and legislation on both sides to preserve continuity of existing cross-border insurance and derivative contracts.Mr Carney said a Brexit transition period of at least 18 to 24 months would be required to help maintain financial stability. “We have said from the outset that, for financial institutions, a transition period of between 18 to 24 months would be the minimum necessary. The 24-month period remains a good estimate,” he said.The governor added that he wanted banks, rather than households, to bear the biggest burden were there to be a disorderly Brexit, although he said that there was bound to be “an economic impact on households and business” if no deal is reached with the EU, mainly because of low growth, higher interest rates and a further fall in the value of sterling.But he insisted that were the UK to leave the union without a deal, it would be “in nobody’s interest”.The FPC also announced it was increasing the amount that banks had to hold in reserve in case of an economic downturn. Mr Carney said the growth of consumer credit in the UK had created “pockets of risk” while the potential for new global economic issues meant banks should be prepared for further losses.For related news and features, visit our Brexit section. Look out for the launch of 2018's Relocate Awards, entries open in January.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory

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