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LONDON (Alliance News) - The Bank of England on Tuesday said the banking system is strong enough to continue lending in the event of a global economic downturn, although its stress tests showed that Royal Bank of Scotland Group PLC and Standard Chartered PLC had capital inadequacies at the end of 2014.
However, because of actions taken to raise capital since the end of 2014, the Bank of England?s Prudential Regulation Authority did not require either RBS or Standard Chartered to submit revised capital plans.
The stress tests did not show capital inadequacies for Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC, Nationwide Building Society, or Santander UK.
The stress tests, which assessed banks? capital strength at the end of 2014, considered the effect of a big slowdown in growth in China and across the globe, as well as plunging commodity prices, deflation in the eurozone and heightened volatility in financial markets.
Separately, banks were tested for their ability to withstand billions of pounds of fines for misconduct. Critically, the banks were restricted from protecting their capital levels by cutting credit supply to the UK real economy.
All seven banks met the 4.5% common equity tier one and 3.0% leverage ratio hurdles in the hypothetical stress scenario. However, RBS failed to meet its individual capital guidance in the stress, while Standard Chartered was unable to meet its tier one minimum capital requirement of 6%.
The sale of Citizens Financial Group, a US retail bank, and the issuance of additional tier one securities has enabled RBS to build its capital position since 2014, while Standard Chartered has detailed plans to raise USD5.1 billion in a rights issue and cut costs.
Meanwhile, the Bank of England?s Financial Policy Committee said it intends to make ?active use? of the countercyclical buffer that will be applied to banks? UK exposures.
According to its Financial Stability Report, the FPC intends to vary the buffer up and down in line with risks in the system. The buffer will be set above zero before risks become elevated. Following a crisis, in the period of repair, the buffer will be set at zero. When risk is neither subdued nor elevated, the buffer will be in the region of 1% of risk-weighted assets.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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