British banks warn on Brexit

Britain’s banks all avoided bills for more capital in annual stress tests for the first time since 2014, but the Bank of England warned of pain ahead if there is no Brexit deal and said the country’s current account deficit posed a big risk.

High-street banks could cope with a “disorderly” Brexit without curbing lending or being bailed out by taxpayers, the Bank of England said after its annual health check on lenders.

Nevertheless, Barclays and RBS — which owns Ulster Bank — struggled to make it through the tests, relying on capital raised this year rather than in 2016, as normally required for a passing grade.

RBS said it was making progress toward being a “stress resilient” bank. Barclays noted that it did not need to raise fresh capital.

Britain’s other main lenders — HSBC, Lloyds Banking Group, Santander, Standard Chartered, and the Nationwide Building Society — all passed.

“The [Bank of England] ... judges that the banking system can continue to support the real economy, even in the unlikely event of a disorderly Brexit,” governor Mark Carney said at a news conference.

However, he said it was in the interests of both Britain and the EU to reach a deal before Brexit in March 2019, despite slow progress so far.

“In the event of a sharp disorderly Brexit, there will be an economic impact on households, on businesses. There will be lost markets before new markets are found, and there will be some pain associated with that.”

Furthermore, if a disorderly Brexit were to hit at the same time as a deep global recession and more big misconduct fines for banks, it is unclear if the banking system could cope easily, he added.

Britain’s banks have had to triple the capital they hold as a cushion against potential losses since the 2007-2009 financial crisis which plunged the UK into a recession.

The Bank of England had warned of the potential costs of Brexit before the June 2016 referendum, drawing ire from Brexit supporters who said Mr Carney was politicising the bank. The Bank of England says its mandate requires it to talk about where it sees economic risks.

Yesterday, Mr Carney said there were signs foreign investors were demanding greater risk premia to hold some UK assets — though not government bonds or FTSE 100 shares. Last week UK government forecasters sharply downgraded their outlook for the next few years.

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