Stress tests passed but Brexiteers might pounce on Carney

Comment Martin Flanagan

Britain’s major banks do not need to plump up their capital cushions as a result of this year’s balance sheet “stress tests” by the Bank of England for the first time since the tests were launched in 2014.

True, Royal Bank of Scotland and Barclays wheezed to get over the line, rely- ing on capital raised this year rather than in 2016. But that they made it – along with HSBC, Lloyds, Santander, Nationwide and Standard Chartered – is progress. The tests are tough, including synchronicity of recession, sharp rises in interest rates and unemployment, and concurrent slumps in the property and stock markets.

And, in RBS’S case, the still state-backed bank is likely to have a problematic relationship with the stress tests – it failed them a year ago – while it has remaining legacy conduct issues and major fines hanging over it, most notably sub-prime mortgage backed securities in the US.

More widely, Bank of England governor Mark Carney may come under renewed criticism from the EU Leave camp for his comments in the Bank’s half-yearly Financial Stability Report.

The Brexiteers will lap up Carney’s comments that the Boe’s analysis suggests the UK banking system could continue to support the real economy even in the “unlikely event of a disorderly Brexit”.

But there is little logic in the Brexit debate, more a dialogue of the deaf between Britain and the EU on one hand, and the UK Leave and Remain camps on the other.

Many Brexiteers will seize on Carney’s comments that there will be “pain” for both households and businesses if there is a strident, grinding-of-the-gears disorderly Brexit as “evidence” he is politicising the Bank of England. Heaven forfend that a governor of Britain’s central bank would have views on economic cause and effects. Why doesn’t the Canadian just make the tea and play some Leonard Cohen?

Similarly, there might be reverberations from the Greater (or grandiose) Britain brigade at the governor suggesting foreign investors might become warier of British asset classes, particularly middleranking companies rather than the FTSE 100-insulated big boys, if doubts surround our economy.

You only have to imagine Carney saying the opposite to realise the ridiculousness of it all.