On 16 December 2019, the Bank of England’s (BoE) Financial Policy Committee (FPC) published its latest Financial Stability Report.

The Financial Stability Report sets out the FPC’s view of the outlook for UK financial stability, including its assessment of the resilience of the UK financial system and the main risks to UK financial stability, and the action it is taking to remove or reduce those risks. It also reports on the activities of the FPC over the relevant reporting period and on the extent to which the FPC’s previous policy actions have succeeded in meeting its objectives.

Key messages in the report include:

  • the 2019 annual cyclical scenario stress test (ACS) shows the UK banking system would be resilient to deep simultaneous recessions in the UK and global economies that are more severe overall than the global financial crisis, combined with large falls in asset prices and a separate stress of misconduct costs. It would be able to continue to meet credit demand from UK households and businesses even in the unlikely event of these highly adverse conditions;
  • major UK banks’ capital ratios have remained stable since year-end 2018 (the starting point of the 2019 stress test). At the end of 2019 Q3, their Common Equity Tier1 (CET1) ratios were over three times higher than at the start of the global financial crisis. Major UK banks also continue to hold sizable liquid asset buffers;
  • the FPC judges that the 2019 stress-test scenario for the global economy was sufficiently severe to encompass economic risks from both a broader trade war and tensions in Hong Kong. Major UK banks were resilient to the stress scenario, and so will be able to continue to lend to UK households and businesses, even if these risks play out further; and
  • the core of the UK financial system — including banks, dealers and insurance companies — is resilient to, and prepared for, a wide range of UK economic and financial shocks that could be associated with a worst-case disorderly Brexit.

Bank specific results following the 2019 UK banking system stress test can be found in Annex 3.

Alongside the report, the BoE has also published a document on the effectiveness of the stress testing framework and its implementation. The BoE has reviewed banks’ self-assessment against the Basel principles and sets out its findings from the review.