All major British banks have passed the Bank of England’s stress tests

Madrid, July 12 (European Press) –

The eight major banks in the UK have passed the stress tests they were subjected to by the Bank of England, which considers that all entities have proven resilient to a severe stress scenario, so no entity should strengthen its equity position.

And the bank announced that the test results indicate that there will be no bank at the individual or group level below the CET1 or Tier 1 leverage ratio on a transitional basis under IFRS 9 after taking strategic management measures, adding that “no bank is required to enhance his capital as a result of the test.”

He added, “This suggests that major UK banks will be able to withstand severe macroeconomic stress in this scenario, while also having the ability to support UK households and businesses during these stresses.”

The test submitted to Bank of England NatWest, HSBC, Barclays, Standard Chartered, Lloyds, Santander, Nationwide and Virgin Money considered a more risky scenario than that recorded during the 2008 global financial crisis, as highlighted by the institution.

The results of the stress test indicate that, in the scenario, all participating banks and building societies are held above minimum Common Leverage Tier 1 (CET1) minimum leverage rates and there is no need for banks to enhance their capital position as a result of the review.

In fact, the institution highlighted that the overall capital drawdown is lower than in the 2019 stress test, despite the fact that the overall seriousness of the proposed scenario is quite similar.

Overall, bank equity ratios remain well above the minimum overall critical rate CET1 in the stress scenario, going from an initial overall CET1 ratio of 14.2% to a low of 10.8% in the first year of the stress condition, comparable to a global critical rate. The case rate is 6.9%.

Likewise, the total leverage ratio drops from an initial point of 5.3% to a low point of 4.7% against a critical rate of 3.5%.

“At the point where banks’ CET1 ratios are lowest, collectively the CET1 ratios of all eight banks are more than double the level prior to the 2007-2008 global financial crisis,” the Bank of England said.

As such, the UK banks’ CET1 aggregate leverage ratios and Tier 1 leverage ratio remain above their overall minimum ratios by 3.8 percentage points and 1.2 percentage points, respectively, at the low points of capitalization.

In addition, the institution indicated that the examination took into account the balance sheets of banks as of June 2022, while since then, the capital ratios of the main banks in the United Kingdom have increased, with the total capital ratio CET1 reaching 14.6% in the first quarter of 2022. 2023.

reverse scenario.

The main difference from previous stress tests was that the assumed UK inflation rate was around 11% for the first three years of the scenario, peaking at 17%, causing a 13% drop in real household income and a stronger monetary policy response, with higher prices Benefit. to 6% while UK GDP fell 5%, unemployment rose to 8.5% and house prices fell 31%.

Similarly, the main trading partners of the United Kingdom would also experience similar shocks in the opposite scenario, as the real GDP of all major trading partners of the United Kingdom declined, and the global economy contracted by 2.5% in the first year of the scenario. Interest rates peaked at 4.7% for the ECB’s deposit facility and 6.5% for the US Federal Effective Funds Rate.
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