Bank of England says that the Britain’s banks will be able to cope up with a hard brexit
The UK’s banks are prepared to steer the UK through a possible hard brexit. In case there is a ‘no deal’ between the UK and the EU and the country crashes out of the trading bloc, the country’s leading banks – HSBC, Barclays, Lloyds Banking Group, Standard Chartered, Royal Bank of Scotland, Santander and Nationwide – will be able to lend without any curbs or relying on taxpayer’s support.
These are the outcomes of the Bank of England as British banks have passed its ‘stress test’. The ‘test’ primarily considers the amount of capital the banks hold at the beginning of 2017. Despite speculations concerning a brexit upheaval, the central bank is confident that UK banks will continue to support the country’s economy. The bank said that leading financial institutions will be able to cope with a hard brexit scenario. Bank of England Governor Mark Carney said that the people of the UK can move forward with confidence that they can access the financial services they will need to seize the opportunities ahead, a statement which goes against the bank’s typically pessimistic line which it maintained since last year’s referendum vote. In its half-yearly Financial Stability Report (FPC), BoE said that the FPC judges the UK banking system will continue to support the real economy through a disorderly Brexit. The BoE has not made any public judgement on the likelihood of a disorderly, “no deal” Brexit scenario, noting “there are many possible combinations of risks”.
The FPC said that there are potential risks arising from the macroeconomic consequences of some possible Brexit outcomes. It says the stress tests will cover the worst-case scenario risks associated with the worst possible news for the UK economy. However, it warned that the combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test.
The ‘stress test’ is a process which the BoE is carrying on since 2014, under which banks have to provide evidence that have enough money in the bank to withstand the financial trauma of a worst-case-scenario banking crisis. But, the bank said that even in the worst case of a hard brexit, none of the country’s banks will not need to raise extra capital. According to the BoE, the domestic risks facing the UK economy are still at a “standard level overall”.
The news that the country’s banks will be able to cope up in a hard brexit scenario comes as a relief in a situation in which Britain’s leading financial institutions maintain the so-called ‘doom’ agenda since last year’s referendum vote.
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