Bank of England: Banking System Can Handle a No-Deal Brexit

Published December 17th, 2019 - 10:37 GMT
Bank of England: Banking System Can Handle a No-Deal Brexit
The Bank of England also announced that U.K. banks would need to raise capital for emergencies as a buffer by 1 percentage point. (Shutterstock)
Highlights
The announcement was based on the release of the U.K. Financial Stability Report and 2019 bank stress test results.

The Bank of England announced Monday that the British banking system could handle a no-deal Brexit.

The announcement was based on the release of the U.K. Financial Stability Report and 2019 bank stress test results.

"The 2019 stress-test scenario for the U.K. economy was severe enough to encompass the range of economic shocks that could be associated with a disorderly Brexit," the Bank of England said in a statement on the report. "The core U.K. banking system demonstrated resilience to -- and capacity to keep lending in -- that stress scenario."

The Bank of England added that the banking system could handle even the worst-case no-deal Brexit.

The Financial Policy Committee "judges that the core U.K. banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks," of the "worst-case disorderly Brexit," the report said.

A 2019 stress-test includes a U.K. recession scenario where the U.K. GDP falls by 4.7 percent, interest rates rise to 4 percent, and the unemployment rate rises to 9.2 percent in the toughest "war game" test of U.K. banks.

Of seven major U.K. banks and financial institutions, Barclays and Lloyds were the only ones that would have to initiate emergency debt-to-equity conversions due to new accountancy changes in 2023.

"Even after the 2019 stress test, banks would still have twice as much capital as in 2007," the statement noted.

The Bank of England also announced that U.K. banks would need to raise capital for emergencies as a buffer by 1 percentage point.


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