All major UK lenders pass BoE's stress tests
The United Kingdom's banking system is ready to face even the worst possible scenarios, the Bank of England judged in its latest Financial Stability report.
Even under a scenario of "deep" and simultaneous economic recessions in Britain and overseas which combined are worse than the Global Financial Crisis, together with large falls in asset prices and the burden of misconduct costs, UK lenders could cope, Bank said after conducting its latest round of so-called 'stress tests'.
In their stress tests, policymakers penciled-in a 4.6% contraction in the UK's gross domestic product, a jump in the rate of unemployment to 9.5%, a one third drop in home prices, a 40% decline in commercial real estate prices and a 27% downdraft in Sterling even as Bank Rate is hiked to 4%.
"Despite facing loss rates consistent with the global financial crisis, the major UK banks' aggregate CET1 capital ratio after the stress would still be twice its level before the crisis," Bank said.
All lenders covered in the Bank's stress tests would be able to continue meeting demand for credit from the real economy even under the above "very severe" stress scenario, policymakers said.
Included in the 2018 stress test were outcomes based on "worst case" assumptions regarding the challenges facing Britain's economy even under a cliff-edge scenario.
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