The Bank of England said Britain’s biggest lenders emerged from its latest stress test with the strength to keep lending even during a “disorderly” Brexit.
Five of the seven banks passed the health check, while two — Barclays PLC and Royal Bank of Scotland Group PLC — fell below their systemic reference point, a higher threshold that reflects their global significance.
Yet actions taken by the banks since the end of last year mean neither needs to bolster their capital, the central bank said yesterday.
While the test did not factor in economic shocks specifically related to the withdrawal from the EU, it pitted banks against a 4.7 percent plunge in economic output, the British pound crashing 27 percent versus the US dollar, house prices devaluing by a third and £40 billion (US$53.3 billion) of misconduct charges.
“The stress-test scenario therefore encompasses a wide range of UK macroeconomic risks that could be associated with Brexit,” the central bank said.
As a result, it “judges the UK banking system could continue to support the real economy through a disorderly Brexit.”
A messy divorce — with no trade deal or transition agreement — coupled with a “severe global recession and stressed misconduct costs” could push banks beyond the limits of the stress test, forcing them to draw down capital buffers substantially more. In this case, firms would be more likely to reduce lending, the central bank said.
The central bank also followed through on its plan to increase the countercyclical capital buffer to 1 percent.
In June, the regulator said this buffer level would increase required system-wide capital by £11.4 billion “given current risk-weighted assets.”
The increase becomes binding in a year.
It will not force banks to strengthen capital, but it will require them “to incorporate some of the capital they currently have in excess of their regulatory requirements into their regulatory capital buffers.”
The central bank’s Financial Policy Committee is to consider the adequacy of the buffer rate during the first half of next year and could raise the level again.
HSBC Holdings PLC, Lloyds Banking Group PLC, Nationwide Building Society, Santander UK PLC and Standard Chartered PLC all passed the health check, which was based on data at the end of last year.
The seven lenders incur losses of about £50 billion in the stress scenario, a level that “would have wiped out” their common equity capital a decade ago.
All banks stop paying dividends, bonuses and additional tier 1 debt coupons under the scenario.
Barclays fell below its systemic reference points for common equity tier 1 capital and tier 1 leverage ratio, the central bank said.
It was not required to submit a new capital plan thanks to steps taken since December last year, including issuing £2.5 billion of AT1 debt and selling down its majority shareholding in Barclays Africa Group Ltd.
Royal Bank of Scotland missed its CET1 ratio systemic reference point, but like Barclays was not required to submit a new capital plan.
Before the test results were announced, Goldman Sachs Group Inc analysts led by Martin Leitgeb said the focus would be on Barclays, Lloyds and Standard Chartered, because they are all trying to increase or restart dividend payments.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his