Britain’s lenders could support the economy through a “disorderly” Brexit, the Bank of England said Tuesday, as the sector passed its latest round of stress tests.
The assessments are designed to see whether the banking sector can weather a fierce worldwide recession, crashing house prices and soaring unemployment.
“The stress-test scenario … encompasses a wide range of UK macroeconomic risks that could be associated with Brexit,” read a statement from the BoE’s Financial Policy Committee (FPC).
“As a result, the FPC judges the UK banking system could continue to support the real economy through a disorderly Brexit.”
However, the British central bank warned that both a chaotic Brexit and a global recession-combined with misconduct costs-could result in “more severe” economic fallout than the stress tests anticipate.
The FPC regulator, established after the global financial crisis and tasked with safeguarding Britain’s financial system, added it would re-examine the “adequacy” of its so-called capital buffer rate in light of the findings.
“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 FPC said in its Financial Stability Report.
“In such circumstances, capital buffers would be drawn down substantially more than in the stress test and, as a result, banks would be more likely to restrict lending to the real economy.
“The FPC will reconsider the adequacy of a 1.0 percent UK countercyclical capital buffer rate during the first half of 2018, in light of the evolution of the overall risk environment.”
The Bank of England added Tuesday that all seven major lenders passed its
stress assessments for the first time since it began testing in 2014, and are “resilient” to a fierce worldwide recession.
