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UK’s 8 biggest lenders pass BoE stress test

The Bank of England said on Monday evening the UK’s top eight banks could withstand unemployment rates nearly three times the national rate, a sharp drop in property prices and a major contraction in the economy. , the Bank of England said on Monday night, as it provided lenders with a nearly two-year clean medical bill for the coronavirus. Disease.

The findings are the result of the first stress test of the UK’s biggest lenders two years after the 2020 review. Canceled due to the pandemic. This is the fifth time in a row that all banks have passed without being ordered to take any action since the annual resilience assessment began in 2014.

The BoE said it would make a requirement for banks to keep a special rainy day fund, called a “countercyclical buffer” – a requirement that was suspended in 2020 to facilitate suing banks to continue lending even if the pandemic causes major damage.

The tests were created in the aftermath of the financial crisis as an early warning system so regulators could force banks to cut shareholder payouts; raise money from investors; or take other actions if an imaginary crisis causes them to need a bailout.

Central bank ratings Royal Bank of Scotland, HSBC, Barclays, Standard Chartered, Lloyds, Santander, Nationwide and Virgin Money, included for the first time.

Andrew Bailey, Governor of the Bank of England, said: “The UK banking system has weathered the pandemic well. He said the test involved “a much more severe evolution of the pandemic and the consequent economic shock”.

All eight banks have been checked before the end of the world the script including £800 billion hitting UK GDP between 2020 and 2022, UK unemployment peaking at 12% and UK residential and commercial property prices down 33% year-on-year.

On the contrary, the pandemic has resulted in a cumulative attack GDP below 300 billion pounds, while the latest unemployment rate for the three months to September to be 4.3%. UK house prices recorded fastQuarterly price increases within 15 years, although commercial property prices have fallen as the pandemic pushes people away from offices and urban centers.

The BoE found that banks improved their capital positions in 2020, even as they set aside billions of dollars to address potential Covid-related losses. Losses on loans have so far proven to be lower than anticipated.

“Now is the right time to start rebuilding resilience so we’re well prepared for future shocks,” Bailey said, as announced about the reintroduction of the cache. countercyclical: each bank will have to bring it back to half its pre-Covid levels by December 2022.

Banks are holding more capital than they need, and so they won’t have to raise cash or cut dividends to meet the new requirement.

However, the bank’s financial policy committee (FPC) has said it will not relax mortgage lending standards, although it will consult next year on whether the limits on the availability of mortgage loans are likely to change. current ability to pay is appropriate or not.

The Rule, which has been in place since 2014, includes an income-for-loan measure that limits most mortgages to no more than 4.5 times an applicant’s income. Borrowers must also demonstrate that they can repay if interest rates rise by 3 percentage points.

“The FPC has concluded that overall these measures continue to protect against easing in underwriting standards and a substantial increase in household debt, which could intensify an economic downturn.” economic and financial stability risks,” the Bank of England said.

The latest central bank analysis shows that mortgage debt versus income has stabilized since these measures were introduced in 2014, suggesting that the restrictions protect against a rise in household debt. family. This year the bank establish that the rules restricted an estimated 2% of renters from buying a median-priced property in their area.

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