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Stress tests: Bank of England warns disorderly Brexit would be painful - live! Stress tests: Bank of England warns disorderly Brexit would be painful - live!
(35 minutes later)
Here’s the Associated Press’s take:
Britain’s biggest banks can withstand a series of economic shocks including a no-deal Brexit that would have more severe impacts than what they experienced during the global financial crisis, the Bank of England said on Tuesday.
While concluding that lenders can deal with Britain crashing out of the European Union without a deal and restrictions imposed on British business, the Bank of England warned that additional problems may emerge if a “disorderly” Brexit takes place at the same time as a sharp global recession.
In its annual stress test of the sector, the central bank said the country’s biggest lenders, such as Barclays and Lloyds Bank, were “resilient” to a raft of adverse scenarios, including deep simultaneous recessions at home and abroad and hefty falls in the price of assets.
Bank of England Governor Mark Carney said:
“Despite the severity of the tests, for the first time since the bank began stress testing in 2014, no bank needs to strengthen its capital position as a result.”
More here.
Santander UK say they’re pleased with the stress test results:Santander UK say they’re pleased with the stress test results:
Once again, Santander UK had the lowest stressed CET1 ratio impact of all participating firms, demonstrating our resilient balance sheet and low risk profile.Once again, Santander UK had the lowest stressed CET1 ratio impact of all participating firms, demonstrating our resilient balance sheet and low risk profile.
[CET1 = Common Equity Tier 1, a measure of a bank’s financial strength][CET1 = Common Equity Tier 1, a measure of a bank’s financial strength]
Twitter have collated the best tweets about today’s stress test results:Twitter have collated the best tweets about today’s stress test results:
The @bankofengland modelled an economy with high unemployment and interest rates and found that all major lenders passed its stress tests.https://t.co/7GAbFdoQncThe @bankofengland modelled an economy with high unemployment and interest rates and found that all major lenders passed its stress tests.https://t.co/7GAbFdoQnc
Our City editor Jill Treanor reports that today’s stress tests showed that the UK banking sector could survive a bad Brexit outcome:Our City editor Jill Treanor reports that today’s stress tests showed that the UK banking sector could survive a bad Brexit outcome:
High street banks can withstand a disorderly Brexit, the Bank of England has said, even though Royal Bank of Scotland and Barclays struggled in its latest health check on the sector.High street banks can withstand a disorderly Brexit, the Bank of England has said, even though Royal Bank of Scotland and Barclays struggled in its latest health check on the sector.
For the first time since 2014, when Threadneedle Street conducted its first annual stress tests, the major lenders have not been required by the UK central bank to raise billions of pounds more of capital to strengthen their finances.For the first time since 2014, when Threadneedle Street conducted its first annual stress tests, the major lenders have not been required by the UK central bank to raise billions of pounds more of capital to strengthen their finances.
But RBS, 70%-owned by the taxpayer, and Barclays only passed the hurdle rate set by the Bank because the regulator took account of efforts they had already made to increase their financial strength since the end of last year, when the tests were applied.But RBS, 70%-owned by the taxpayer, and Barclays only passed the hurdle rate set by the Bank because the regulator took account of efforts they had already made to increase their financial strength since the end of last year, when the tests were applied.
The Bank of England is alert to the risks poised by Brexit, and in its half-yearly review of risks to the financial system warns that a disorderly Brexit coupled with a severe global recession and more multibillion pound fines from global regulators could force it to reconsider its assessment.The Bank of England is alert to the risks poised by Brexit, and in its half-yearly review of risks to the financial system warns that a disorderly Brexit coupled with a severe global recession and more multibillion pound fines from global regulators could force it to reconsider its assessment.
Guardian: High street banks ‘can cope with disorderly Brexit’Guardian: High street banks ‘can cope with disorderly Brexit’
The Times’s Katherine Griffiths points out that this year’s tests were pretty tough:The Times’s Katherine Griffiths points out that this year’s tests were pretty tough:
Britain’s big banks can withstand a hard Brexit and still keep lending but Barclays and Royal Bank of Scotland struggled to pass the Bank of England’s latest stress tests.Britain’s big banks can withstand a hard Brexit and still keep lending but Barclays and Royal Bank of Scotland struggled to pass the Bank of England’s latest stress tests.
The seven biggest lenders passed a stress test that was as tough as if the UK crashed out of the European Union, the Bank said, with sterling slumping, interest rates rising to 4 per cent and a record housing crash.The seven biggest lenders passed a stress test that was as tough as if the UK crashed out of the European Union, the Bank said, with sterling slumping, interest rates rising to 4 per cent and a record housing crash.
All seven lenders passed but Barclays and Royal Bank of Scotland struggled. Barclays emerged with the smallest headroom.All seven lenders passed but Barclays and Royal Bank of Scotland struggled. Barclays emerged with the smallest headroom.
The Times: Big banks can cope with hard BrexitThe Times: Big banks can cope with hard Brexit
Over in the FT, Caroline Binham and Martin Arnold flag up that the BoE is making banks strengthen their financial positions:Over in the FT, Caroline Binham and Martin Arnold flag up that the BoE is making banks strengthen their financial positions:
The Bank of England is forcing UK banks to hold an extra £6bn in capital to guard against risks beyond that of Brexit, as it called on the UK and the European Union to introduce legislation to avoid a post-Brexit crisis in derivatives and insurance markets.The Bank of England is forcing UK banks to hold an extra £6bn in capital to guard against risks beyond that of Brexit, as it called on the UK and the European Union to introduce legislation to avoid a post-Brexit crisis in derivatives and insurance markets.
The BoE said on Tuesday that it is raising a special buffer half a percentage point, to 1 per cent, to lock in capital that banks are currently holding voluntarily. The aim is for lenders to better withstand against “material” macroeconomic risks beyond Brexit, such as global debt levels, asset valuations and misconduct costs.The BoE said on Tuesday that it is raising a special buffer half a percentage point, to 1 per cent, to lock in capital that banks are currently holding voluntarily. The aim is for lenders to better withstand against “material” macroeconomic risks beyond Brexit, such as global debt levels, asset valuations and misconduct costs.
The buffer could raise again next year, the central bank warned. A disorderly Brexit is unlikely, the BoE forecasts.The buffer could raise again next year, the central bank warned. A disorderly Brexit is unlikely, the BoE forecasts.
Financial Times: BoE demands extra £6bn buffer from banks; calls for new post-Brexit derivatives rulesFinancial Times: BoE demands extra £6bn buffer from banks; calls for new post-Brexit derivatives rules
Iain Withers of the Daily Telegraph points out that shareholders would suffer if the banks incurred hefty losses.Iain Withers of the Daily Telegraph points out that shareholders would suffer if the banks incurred hefty losses.
The report showed that in the stress test scenario all but Nationwide would stop paying out a dividend within three years, and the building society would pay out just £100m.The report showed that in the stress test scenario all but Nationwide would stop paying out a dividend within three years, and the building society would pay out just £100m.
While this year’s stress test did not explicitly model a ‘hard Brexit’ scenario, the Bank said it was sufficiently severe to give it confidence the UK’s financial system would keep lending to the real economy even in a disorderly exit from the EU.While this year’s stress test did not explicitly model a ‘hard Brexit’ scenario, the Bank said it was sufficiently severe to give it confidence the UK’s financial system would keep lending to the real economy even in a disorderly exit from the EU.
However the report warned politicians on both sides of the Channel to take several important actions to reduce the risks from Brexit, including agreeing a swift transition period and passing legislation to resolve potential contractual conflicts on trillions of pounds of derivative contracts.However the report warned politicians on both sides of the Channel to take several important actions to reduce the risks from Brexit, including agreeing a swift transition period and passing legislation to resolve potential contractual conflicts on trillions of pounds of derivative contracts.
Telegraph: UK banks can weather chaotic Brexit but RBS and Barclays in worst shape, says Bank of EnglandTelegraph: UK banks can weather chaotic Brexit but RBS and Barclays in worst shape, says Bank of England
The press conference wraps up with another warning from Mark Carney that a no-deal Brexit would be undesirable for everyone involved.The press conference wraps up with another warning from Mark Carney that a no-deal Brexit would be undesirable for everyone involved.
Q: Is the Bank of England concerned about the row at the London Stock Exchange over its leadership?Q: Is the Bank of England concerned about the row at the London Stock Exchange over its leadership?
Mark Carney replies that the LSE plays an important role in UK financial stability. Its CEO Xavier Rolet has made an “extraordinary contribution....but everything comes to an end”.Mark Carney replies that the LSE plays an important role in UK financial stability. Its CEO Xavier Rolet has made an “extraordinary contribution....but everything comes to an end”.
Carney says he’s “a bit mystified” by the row over Rolet’s succession.Carney says he’s “a bit mystified” by the row over Rolet’s succession.
[Explainer: Rolet’s departure was announced last month. It has since emerged that he had been asked to step down by the board, after falling out with chairman Donald Brydon.[Explainer: Rolet’s departure was announced last month. It has since emerged that he had been asked to step down by the board, after falling out with chairman Donald Brydon.
Activist investor the Children’s Investment Fund is now demanding that Brydon leaves, and Rolet stays on #developing #popcorn]Activist investor the Children’s Investment Fund is now demanding that Brydon leaves, and Rolet stays on #developing #popcorn]
Q: Are UK banks being too complacent about the impact of Fintech, by assuming they can cut costs while maintaining market share?Q: Are UK banks being too complacent about the impact of Fintech, by assuming they can cut costs while maintaining market share?
That’s the challenge, Carney replies.That’s the challenge, Carney replies.
UK banks are assuming that they can use new technology to bring down the cost of acquiring new customers.UK banks are assuming that they can use new technology to bring down the cost of acquiring new customers.
From next year, it will be easier for customers to shift accounts. And that could mean that some banks become less “front-facing”, as new challengers reshape the industry.From next year, it will be easier for customers to shift accounts. And that could mean that some banks become less “front-facing”, as new challengers reshape the industry.
The City has taken the stress test results in its stride. Shares in HSBC and RBS are up a little, while Barclays and Lloyds have dipped.The City has taken the stress test results in its stride. Shares in HSBC and RBS are up a little, while Barclays and Lloyds have dipped.
UK banks fairly muted reaction to stress test results $RBS $BARC $LLOY #banks pic.twitter.com/TZII3vVncXUK banks fairly muted reaction to stress test results $RBS $BARC $LLOY #banks pic.twitter.com/TZII3vVncX
Mary Carney is reiterating that UK banks could handle a hard Brexit -- but there could be trouble if they also faced a wider downturn.Mary Carney is reiterating that UK banks could handle a hard Brexit -- but there could be trouble if they also faced a wider downturn.
Banks are resilient to a disorderly Brexit, the question is what if something else happens at the same time says BoE's Mark CarneyBanks are resilient to a disorderly Brexit, the question is what if something else happens at the same time says BoE's Mark Carney
*CARNEY: DISORDERLY BREXIT WOULD RESULT IN LOWER STERLING & WEAKER ECONOMY*CARNEY: DISORDERLY BREXIT WOULD RESULT IN LOWER STERLING & WEAKER ECONOMY
Q: Are you concerned about the state of the UK mortgage market today?Q: Are you concerned about the state of the UK mortgage market today?
Mark Carney says the FPC have put several restrictions in place in recent years, to prevent lenders from making unduly risky loans. Those measures seem to be working.Mark Carney says the FPC have put several restrictions in place in recent years, to prevent lenders from making unduly risky loans. Those measures seem to be working.
Today’s stress tests also found that buy-to-let mortgages would suffer the bulk of the losses if there was a financial crisis.Today’s stress tests also found that buy-to-let mortgages would suffer the bulk of the losses if there was a financial crisis.
Loans to owner-occupiers would be much more modest.Loans to owner-occupiers would be much more modest.
In other words, families would keep paying off their mortgages even if the economy went into recession, but some buy-to-let lenders might struggle to meet their obligations.In other words, families would keep paying off their mortgages even if the economy went into recession, but some buy-to-let lenders might struggle to meet their obligations.
Carney - The losses on buy to let mortgages are 4 times the losses on owner occupier mortgages under bank stress tests of rate rise from 0.5% to 4%Carney - The losses on buy to let mortgages are 4 times the losses on owner occupier mortgages under bank stress tests of rate rise from 0.5% to 4%
Q: Who will bear the biggest burden from a disorderly Brexit, UK households or the banks?Q: Who will bear the biggest burden from a disorderly Brexit, UK households or the banks?
We hope that the banks bear the burden, Carney grins. That’s why they have capital reserves, to cope with tough times.We hope that the banks bear the burden, Carney grins. That’s why they have capital reserves, to cope with tough times.
The governor says:The governor says:
What we want...is that people who could get mortgages prior to that event can still get mortgages. If you’ve got a good business ides you can still get funding post-Brexit.What we want...is that people who could get mortgages prior to that event can still get mortgages. If you’ve got a good business ides you can still get funding post-Brexit.
But at disorderly Brexit would still have an ‘economic impact’ on households and businesses.But at disorderly Brexit would still have an ‘economic impact’ on households and businesses.
“There will be some pain associated with that”, Carney concludes; the Bank’s job is to dampen that pain.“There will be some pain associated with that”, Carney concludes; the Bank’s job is to dampen that pain.
Carney: a sharp, disorderly Brexit would lead to an "economic impact on households and businesses. There would be some pain associated with that, this is about dampening that" @bankofenglandCarney: a sharp, disorderly Brexit would lead to an "economic impact on households and businesses. There would be some pain associated with that, this is about dampening that" @bankofengland
Q: Do regulators on the continent understand the dangers of a disorderly Brexit to the EU?Q: Do regulators on the continent understand the dangers of a disorderly Brexit to the EU?
Carney says there is an “increased appreciation” of these issues on the continent, and the Bank is in regular contact with EU officials about these issues.Carney says there is an “increased appreciation” of these issues on the continent, and the Bank is in regular contact with EU officials about these issues.
He singles out the risks of cross-border insurance and derivatives contracts -- these issues can be fixed, but they take time, he says sternly.He singles out the risks of cross-border insurance and derivatives contracts -- these issues can be fixed, but they take time, he says sternly.
The BBC’s Simon Jack nails it:The BBC’s Simon Jack nails it:
Carney - Disorderly Brexit is something we are all working to avoid because there will be significant disruption - but won't be worse than the economic stresses we have put in the tests ie 33% fall in house prices and doubling of unemployment. Not very comforting.Carney - Disorderly Brexit is something we are all working to avoid because there will be significant disruption - but won't be worse than the economic stresses we have put in the tests ie 33% fall in house prices and doubling of unemployment. Not very comforting.
Q: Will next year’s stress tests include a specific test for a disorderly Brexit?Q: Will next year’s stress tests include a specific test for a disorderly Brexit?
No, says Mark Carney. In 12 months time it will be too late.No, says Mark Carney. In 12 months time it will be too late.
Mark Carney @bankofengland says disorderly Brexit is "highly unlikely" and all parties are working towards avoiding itMark Carney @bankofengland says disorderly Brexit is "highly unlikely" and all parties are working towards avoiding it
Stress tests assumed UK GDP falls 4.7%, unemployment rises to 9.5%, house prices fall 33%. Carney says Hardest Brexit no worse than this.Stress tests assumed UK GDP falls 4.7%, unemployment rises to 9.5%, house prices fall 33%. Carney says Hardest Brexit no worse than this.
Q: What is the impact of a disorderly Brexit on the banking sector, compared to an orderly one?Q: What is the impact of a disorderly Brexit on the banking sector, compared to an orderly one?
Mark Carney explains that today’s stress tests modelled a huge recession -- with growth slumping, unemployment tumbling, and the pound shedding a quarter of its value.Mark Carney explains that today’s stress tests modelled a huge recession -- with growth slumping, unemployment tumbling, and the pound shedding a quarter of its value.
Under that scenario, UK banks lose £50bn of capital - but aren’t sunk by those losses.Under that scenario, UK banks lose £50bn of capital - but aren’t sunk by those losses.
So... a disorderly Brexit wouldn’t be any worse than that.So... a disorderly Brexit wouldn’t be any worse than that.
Carney says the Bank is putting its money where its mouth is, as it would be called on to support the UK banking scenario if Brexit goes badly.Carney says the Bank is putting its money where its mouth is, as it would be called on to support the UK banking scenario if Brexit goes badly.
He warns:He warns:
This [a disorderly Brexit] is not a good scenario... it is one we are all working to avoid as it has some quite material economic costs, even if the financial system continues to operate through it.This [a disorderly Brexit] is not a good scenario... it is one we are all working to avoid as it has some quite material economic costs, even if the financial system continues to operate through it.