Global Rates, Retail Banking Included in Bank of England Stress Test

LONDON, Sept 26 (Reuters) – Banks’ ability to weather rising global interest rates and their retail divisions’ resilience to market shocks will come under scrutiny in this year’s ‘stress test’. , the Bank of England announced on Monday.

The test checks whether banks hold enough capital to cope with theoretical shocks and aims to avoid a repetition of situations where taxpayers have to bail out lenders as they did during the global financial crisis more than a decade ago. .

The test was adapted and delayed during the COVID-19 pandemic, but has now returned to its annual slot, with results expected in mid-2023 to help the BoE determine capital levels.

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“The stress scenario is more severe than the global financial crisis, both for the UK and for the world,” the BoE said in a statement.

As the BoE and other central banks raise interest rates to stifle decades-high inflation amid the impact of Russia’s invasion of Ukraine, the test will verify for the first time the resilience of eight lenders to rising borrowing costs globally and not just in the UK.

The eight banks are HSBC (HSBA.L), Barclays (BARC.L), Standard (STAN.L), Lloyds (LLOY.L), NatWest (NWG.L), Santander UK (SAN.MC), Virgin Money ( VMUK.L) and Nationwide Building Society.

The scenario – which is closer to a pessimistic situation than how the BoE actually expects the economic outlook to develop – covers five years from the end of June 2022 and includes a rise in the bank rate of the BoE to 6% at the start of next year and a 5% rise in UK economic output, as well as a 31% fall in property prices.

It will for the first time test “closed” retail branches of banks on a stand-alone basis, the BoE said.

There will be a stress test separate from the misconduct costs.

“Banks are asked to provide stressed projections of misconduct costs related to known misconduct issues that have a low probability of being exceeded,” the BoE said.

The test does not have a pass or fail grade, but a tailor-made “hurdle” for each bank.

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Reporting by David Milliken and Huw Jones; Editing by Kate Holton and Jane Merriman

Our standards: The Thomson Reuters Trust Principles.

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