LONDON – The United Kingdom’s prominent lenders could withstand the shock of a severe national or global economic recession and a disorderly Brexit in which no deal is struck between the government and the European Union, a Bank of England stress test report said on Tuesday.
The Financial Policy Committee report from the UK’s regulatory bank said the country’s seven largest lenders were three times stronger than they were at the time of the global economic crisis in 2007 and that for the first time since such stress-tests began in 2014, none of the examined entities needed to strengthen their capital.
“The FPC judges that, given their current levels of resilience, UK banks could continue to support the real economy even in the event of a disorderly exit from the European Union,” Governor of the BoE Mark Carney told a press conference, warning, however, that such a hard Brexit should be avoided.
He added that in the unlikely case that a no-deal Brexit was coupled with an extreme global economic recession, the effects on the UK banking sector would be more severe than what could be predicted in the latest test report.
The test simulated the reactions of Barclays, HSBC, Lloyds Banking Group, Nationwide, Royal Bank of Scotland, Santander UK and Standard Chartered in the case of a 4.7 percent drop in the UK’s gross domestic product, 2.4 percent fall in global GDP, a downturn in investors appetite, the value of the pound and a 33 percent slump in house prices.
Barclays and RBS, which was bailed out by the government in 2008 during the sharp recession, struggled through the latest stress-test and only passed based on reforms they initiated in 2016.
The UK is on track to officially leave the EU by March 2019, with or without a deal.