Bank of England stress test reveals all eight major UK banks have enough capital

• The annual stress test by BoE found that all eight major banks have enough capital.
• The test included a scenario with higher interest rates and a deep recession.
• No banks were required to submit revised capital plans.

The Bank of England (BoE) reported on Wednesday that none of the eight major institutions subjected to its annual stress test would need to submit a revised capital plan because each could manage rising interest rates in a challenging environment.

The test determined whether banks had enough capital to withstand hypothetical shocks in a scenario that, according to the BoE, was more severe than the 2008 global financial crisis, which required British taxpayers to bail out multiple lenders.

The test evaluated the lenders’ ability to handle an increase in interest rates on a global scale.

75% of credit in Britain is controlled by just eight institutions.

“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 BoE stated in a statement.

Each bank had to clear a unique obstacle; there was no single threshold that all banks had to clear. According to the BoE, Barclays, Lloyds, HSBC, NatWest, Santander UK, Standard Chartered, Nationwide Building Society, and Virgin Money all passed with flying colors.

The Bank declared that it has made the decision to leave the banks’ counter-cyclical capital buffer (CCyB) intact.

“In the current context of its overall capital strategy, the FPC judges that the neutral rate for the UK CCyB is around 2%,” the BoE stated.

Virgin Money stated that it expected to resume its share buyback program this year given the completion of the stress test successfully.

The group’s “all weather” balance sheet was highlighted by the test, according to NatWest, Britain’s largest lender to small businesses.

The test results were also recognized as being successful by Lloyds, Nationwide, and Standard Chartered.

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