The headquarters of Standard Chartered bank is located in London, Britain. On July 26, 2022, REUTERS/Peter Nicholls/File photo reported that Britain’s eight largest lenders have sufficient capital to withstand economic stress that exceeds the 2008 financial crisis, according to the Bank of England (BoE). This comes as the banking sector faces the impact of rising interest rates, which is affecting both consumers and businesses. The BoE conducted a stress test to assess whether the banks had enough capital to endure hypothetical shocks. The test scenario was deemed more severe than the global financial turmoil of 2008, which required a bailout of several lenders by British taxpayers. The test also evaluated the banks’ ability to handle a global increase in interest rates. These eight banks hold a 75 percent share of lending in Britain.
In a statement, the BoE stated, “The results of the 2022/23 annual cyclical scenario (ACS) stress test show that the major UK banks are resilient to a severe stress scenario that incorporates persistently higher advanced economy inflation, increasing global interest rates, deep simultaneous recessions with materially higher unemployment in the UK and global economies, and sharp falls in asset prices.” The statement further added that the major UK banks have strong capital and liquidity positions and have witnessed improved profitability. This enables them to enhance their capital positions and support their customers.
The BoE clarified that there was no universal pass mark for the stress test, but each bank had to reach a specific hurdle. Barclays, Lloyds, HSBC, NatWest, Santander UK, Standard Chartered, Nationwide Building Society, and Virgin Money all demonstrated no capital inadequacies, as per the BoE.
The Bank has decided to maintain its counter-cyclical capital buffer (CCyB) for banks at its current level, ensuring that banks have enough capacity to absorb future shocks without overly restricting lending.
Despite rising interest rates, the economy has shown resilience, according to the Bank. Virgin Money, having successfully completed the stress test, announced its plans to resume its share buyback program this year. This news caused its shares to rise by 3 percent in early trading. Barclays and Lloyds also experienced gains of around 1.5 percent, while NatWest, HSBC, and Standard Chartered saw smaller increases. NatWest, being the largest lender to small businesses in Britain, emphasized the strength of its “all weather” balance sheet. Lloyds, Nationwide, HSBC, and Standard Chartered also acknowledged their successful performance in the stress test.
The Bank is collaborating with the finance ministry to explore potential options for winding down small banks, particularly in light of recent events in the United States. The collapse of Silicon Valley Bank and the need for Britain to orchestrate a takeover of its UK subsidiary have raised concerns. The BoE noted that digital banking technology and social media played a role in rapid deposit outflows at some regional U.S. banks.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
