The Bank of England plans to lift the amount of high-quality capital that banks must hold, even as it said the U.K.’s biggest lenders can weather a financial crisis.
The central bank said it will raise the buffer, which is designed to release funds if conditions deteriorate, to 2% from 1%. However, other tweaks to the capital rules mean banks will only need to increase the highest-quality capital, known as Tier 1, to about 14% from 13.7%, according to the BOE’s Financial Stability Report released on Monday.
The U.K.’s seven largest lenders also all passed the central bank’s latest stress test, showing they’re strong enough to continue lending even in a global downturn or in the event Britain leaves the European Union next year without a trade agreement.
“The resilience of U.K. lenders is confirmed as high, but we should also consider that it has become more and more difficult to design extreme scenarios,” said Angela Gallo, a finance lecturer at Cass Business School in London.
The 2019 scenario for the global economy “was sufficiently severe to encompass economic risks from both broader trade war and tensions in Hong Kong. Major U.K. banks were resilient to the stress scenario, and so will be able to continue to lend,” the report said.
The exam, designed to be tougher than the 2008 financial crisis, gauged banks against a 4.7% decline in U.K. economic output in a year, the…