Details have emerged of an extraordinary ‘stress test’ created by the Bank of England and tested on eight major banks to see if they would survive a catastrophic tanking of the economy.
The scenario created by the BoE would have house prices falling by 31 per cent, the unemployment rate increasing to 8.5 per cent and inflation rising to 17 per cent.
The banks and lenders tested - Barclays, Lloyds, HSBC, NatWest, Santander UK, Standard Chartered, Nationwide Building Society and Virgin Money - all passed, according to the BoE’s latest Financial Stability Report, released this week.
The report says: “We recently tested the major UK banks using a severe stress scenario that is much worse than the economic outlook we expect. The stress scenario included the unemployment rate increasing to 8.5 per cent, inflation rising to 17 per cent, and house prices falling by 31 per cent.
“The results of this stress test showed that the UK banking system would continue to be resilient, and be able to support households and businesses, even if economic conditions turned out to be much worse than we expect.
“As borrowing costs have increased, the demand for loans has reduced. Banks do not appear to be cutting the availability of credit in a way that is out of line with changes in borrower creditworthiness.
“We set the Counter Cyclical Buffer rate each quarter. This provides banks with an additional ‘rainy day’ buffer making sure they can withstand potential losses without restricting lending to the wider economy. The UK CCyB rate has been maintained at 2.0 per cent.”
In its most recent six-monthly Financial Stability Report, the Bank admitted that raising base rate from 0.1 per cent in December 2021 to 5.0 per cent now, in an effort to bring down inflation, has inevitably meant higher monthly mortgage payments and other household costs.
The report says: "Higher interest payments on loans mean some borrowers may struggle with their repayments, which increases the risks faced by banks … [but] UK banks are resilient and are strong enough to support their customers."
Sophie Lund-Yates, lead equity analyst at business consultancy Hargreaves Lansdown, says: “The Bank of England’s latest stress test has shown the UK’s main lenders will be able to stomach worsening economic conditions. This includes the effects of weakening commercial real estate prices, recessions, higher rates and inflation.
“The tests come as a relief during a time that’s been marred by anxiety about regional banking failures in the US as interest rates have shot up in many major economies. A combination of strong balance sheets, healthy asset-classes and a stricter regulatory environment mean the UK’s financial giants also have more room to help customers if things get tougher, including changing the terms of loans if needed.
“The Bank of England also highlighted even smaller lenders are able to withstand a higher-rate environment.
“Overall, there aren’t too many people falling behind on their mortgage payments, but it’s widely acknowledged that the full extent of higher rates is yet to trickle down – and the point at which this happens is likely to have consequences for the wider economy and companies.”
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Some nonsense or course the fat cat Banks will survive no need for a stress test.
How can they fail if they get in trouble we bail them out like last time if a landlord fails he will go to the wall.
Bail them out yes but not like last time. A BoE policy statement from 2012 states that the next time it won't be the Government that steps in it'll be the 'unsecured creditors' paying directly. That's you and me with funds in the bank. Your savings will simply disappear and whilst there is the bank guarantee of £85k it's never been tested. The Government could also simply reduce it overnight to any figure they feel would allow the banks to survive.
Makes my blood boil! Arrogance and ignorance combined. It really doesn’t matter what happens the bank bosses are fine and get the big bonuses anyway.
They’re back to their old cocky ways again … f us all!
So the BoE raises interest rates to a level that financially cripples people then checks to see if the banks are ok. When they are, that is deemed successful! I wonder how many people will lose their homes & businesses because of interest rate rises?
Yes I read that the same way like the saying ‘I’m alright Jack’. I think the BOE has been asleep at the wheel and they have no other tool other than make mortgage holders suffer. Hey not to worry they will be alright and will collect bonuses
The BOE have made some very bad decisions, and they keep making them. There is way more to go with all this, there WILL be repossessions whatever the banks try to do to mitigate it.
So All the ‘BOYS ‘ will be okay but F all the little people who keep them in their offices in the high rise blocks!!
I remember after the last crash and the banks had to have stronger reserves of cash, they deployed a rather ingenious tactic.
1. Call the debts in and cut the credit lines of thousands of SME businesses.
2. This shifted them to a different part of the bank or default, therefore increased % wise their cash and reduced exposure
3. All the banks smiled because they had been very clever and thousands of business owners through no fault of their own had their businesses and livelihood taken away with no recourse.
Treat banks they way the treat you, with utter contempt...
Couldn’t agree more Peter, their arrogance knows no bound and they invisibly hide behind corporate facades so the little guys can’t challenge them.
Banks are protected by the Govt, - they're all in one big conspiracy against the public
In the old days it was easy to see who the bad guys were , our benevolent government told us
Now people are more educated and enlightened and see who the real bad guys were all along ….
Everyone are the bad guys except landlords
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