The Bank of England (BoE) has issued its latest Financial Stability Report (the Report).

Key points in the report include:

  • the 2017 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs;
  • major UK banks’ capital strength has tripled since 2007; their Tier 1 capital ratio was in aggregate 16.7% in September 2017;
  • for the first time since the BoE launched its stress tests in 2014, no bank needs to strengthen its capital position as a result of the stress test;
  • the Financial Policy Committee (FPC) is raising the UK countercyclical capital buffer rate from 0.5% to 1%, with binding effect from 28 November 2018;
  • the stress-test scenario and the resulting setting of capital buffers reflect the FPC’s assessment that, apart from those related to Brexit, domestic risks are at a standard level overall, and that risks from global debt levels, asset valuations and misconduct costs remain material;
  • the FPC judges that the UK banking system could continue to support the real economy through a disorderly Brexit;
  • the FPC will reconsider the adequacy of a 1% UK countercyclical capital buffer rate during the first half of 2018, in light of the evolution of the overall risk environment; and
  • EEA-incorporated banks that operate in the UK as branches will need authorisation to operate in the UK. To maintain financial stability, the conditions for authorisation, particularly for systemic entities, will depend on the degree of co-operation established between regulatory authorities. The PRA plans to set out its approach to authorisations before the end of the year.

View Financial Stability Report, November 2017, 28 November 2017