BoE Confirms that British Banks Can Survive Brexit

The Bank of England said on Tuesday the Britain’s banks will be able to survive Brexit without having to change anything. This statement came after the bank went through its annual lenders’ health check.

British flag waving in the air

The British flag is waving in the air.

The health check, which has been started in 2014, has been known to produce negative results for the banks. But, according to BoE, for the first time, the “stress-testing” results showed that none of Britain’s major lenders will need to raise extra capital.

The administered stress tests use the amount of capital banks held at the start of 2017 in determining results.

Barclays and Royal Bank of Scotland failed on this basis but no longer needs to raise capital since they already did during the course of the year.

“The (BoE) … judges that the banking system can continue to support the real economy, even in the unlikely event of a disorderly Brexit,” stated Governor Mark Carney.

Finance minister Philip Hammond will find the results in his favor. It will offer relief as he is about to sell 3 billion pounds of public holdings of RBS shares during the next financial year. He’d do the selloff in hopes of reducing public debt.

HSBC, Lloyds Banking Group, Santander UK, Standard Chartered, as well as the Nationwide Building Society all passed the test with no reservations.

Brexit and Banks

Britain’s economy lost momentum this year due to higher inflation eating into households’ disposable income. The inflation was mostly caused by the fall in the pound after the Brexit vote made in June 2016.

Government forecast last week lowered their outlook sharply for the next few years. They predicted annual growth that barely reached 1.5 percent, which was almost a full percentage lower than Britain’s historic trend.

By March 2019, Britain will be leaving the European Union. The BoE’s Financial Policy Committee states time and time again that a “timely agreement” on an implementation period for transitional arrangements will help greatly in reducing financial stability risks.

The BoE stated that even if Britain does move out of EU, the latest stress test implied that banks are strong enough to survive. It then showed the recently published bi-annual Financial Stability Report as proof.

The Bank also pointed out that the British and European Union should establish new laws that will help make sure that there was no interference to the 26 trillion pounds worth of cross-border derivative contracts and 36 million insurance contracts that EU and British policy holders hold.

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