BOE stress test: Bank stocks advanced as all seven of the country’s biggest banks passed the BOE’s annual health check. The stress tests suggested banks may face higher capital reserve requirements, after the Bank of England hinted it may raise the so-called countercyclical buffer from its current rate of zero per cent.
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But both took steps to raise capital, so were not told to come up with a new plan, as Co-Operative Bank were past year.
Shares in Standard Chartered Bank, Lloyds Group, Royal Bank of Scotland, HSBC and Barclays rose 1.2 to 2.7 per cent, helping the European banking index to gain more than 1 per cent, after the BoE said major United Kingdom lenders did not have to take any action.
RBS did not meet the regulator’s individual capital guidance and Standard Chartered did not meet one of its minimum capital requirements.
Meanwhile, Europe would be faced with a three-year slump as domestic demand fell and world trade and commodity prices suffered, leading to long-term market uncertainty and investors retreating into “safe-havens”.
But speaking after the release of the stress test results, Governor Carney said Britain’s financial system was significantly more resilient than before the financial crisis, with banks’ holdings of liquid assets now four times larger.
“Overall, this reads more positively that we expected”, says Deutsche Bank analyst David Lock.
“The FPC remains alert to financial stability risks arising from rapid growth in buy-to-let lending and will monitor developments in buy-to-let activity closely following the tax changes to the buy-to-let market announced by the Chancellor in the Budget and Autumn Statement”, the Bank said.
RBS’s transitional Common Equity Tier 1 (CET1) capital ratio under the hypothetical adverse scenario was 5.9 percent.
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“Standard Chartered believes that the results demonstrate the Group’s resilience to a marked slowdown across the key markets in which it operates”, it said. For Hong Kong, the test modelled a 45 per cent fall in commercial real estate prices.
