British banks pass stress test

LONDON: All British banks have passed an annual central bank stress test for the first time and are capable of withstanding a “disorderly Brexit” from the European Union, the Bank of England said on Tuesday.

No bank needs to strengthen its capital position following the stress test, the first such result since the tests began in 2014, the central bank reported. It said the test found that Britain’s banking system is “resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs.”

The scenario used in the test was “more severe than the (2008) global financial crisis,” imagining a fall of 2.4% in global economic growth and a fall of 4.7% in Britain, causing the banks to lose about £50 billion (RM2.7 trillion) over two years.

“This scale of loss, relative to their assets, would have wiped out the common equity capital base of the UK banking system 10 years ago,” the bank said.

Mark Carney, the bank’s governor, said financial experts believed that Britain’s banking system “can continue to support the real economy even in the unlikely event of a disorderly Brexit.”

“That said, in the extreme event in which the UK faced a disorderly Brexit combined with a severe global recession and stressed misconduct costs, losses to the banking system would likely be more severe than in this year’s annual stress test,” Carney said. - dpa