{"id":162044,"date":"2019-12-18T11:59:06","date_gmt":"2019-12-18T16:59:06","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=162044"},"modified":"2019-12-18T11:39:31","modified_gmt":"2019-12-18T16:39:31","slug":"uk-banks-pass-boe-stress-tests","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/12\/uk-banks-pass-boe-stress-tests\/","title":{"rendered":"UK Banks Pass BOE Stress Tests"},"content":{"rendered":"
December 18, 2019<\/div>
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By <\/strong>Orbex<\/strong><\/a><\/p>\n

According to the stress tests carried out by the Bank of England this week, the UK banking sector is \u201cresilient\u201d enough to withstand even a worst-case\u00a0\u201cno-deal\u201d Brexit scenario.<\/a><\/p>\n

Worst Case Scenario<\/strong><\/h2>\n

Each of the UK\u2019s main banks underwent their yearly \u201cstress tests\u201d this week, designed to illuminate any weaknesses within the financial system. As part of the tests, analysts measured how the banking sector could withstand the worst of financial shocks.<\/p>\n

The most extreme scenario used was one that far surpasses the current predictions for the fallout from a \u201cno-deal\u201d Brexit.<\/p>\n

In the conditions used, the UK would crash out of the EU without a deal, sending GDP lower by 4.7%. Meanwhile, interest rates would climb 4%, with the unemployment rate rocketing up to 9.2%.<\/p>\n

This constitutes the most severe \u201cstress test\u201d conducted over recent years.<\/p>

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All Banks Pass BOE Stress Tests<\/strong><\/h2>\n

However, investors will be pleased to know that each of the UK\u2019s leading banks survived the tests. But, the tests did reveal that Barclays and Lloyd\u2019s would need to trigger their emergency debt-to-equity conversions as a result of changes to accountancy due to take place in 2023.<\/p>\n

That being said, in total, the capital ratios of the main banks combined was still over 200% more than they were after the financial crisis in 2008.<\/p>\n

Following the tests, the BOE recommended that each of the banks involved increase its capital buffers by 1%.<\/p>\n

Financial Stability Report Cites Brexit Risks<\/strong><\/h2>\n

Along with the stress test results, the BOE also released its financial stability report.<\/p>\n

In it, the BOE noted:<\/p>\n

\u201cAgainst a backdrop of Brexit-related uncertainty, growth has slowed and international investor demand for assets, notably commercial real estate, has fallen.\u201d<\/p><\/blockquote>\n

BOE To Keep Rates on Hold Despite Dovish Risks<\/strong><\/h2>\n

This assessment from the bank comes ahead of the final Monetary Policy Meeting of the year due on Thursday. Despite the concern for the economy, we aren\u2019t expecting the BOE to cut rates at this point.<\/p>\n

At the November meeting, two of the BOE\u2019s policy-makers voted in favor of rate cuts. This marked the first support for such a move since the 2016 rate cut.<\/p>\n

However, the Conservative party has now won a majority in parliament. And Johnson will probably be getting the backing he needs\u00a0for his deal on Friday.<\/a>\u00a0So, it seems likely that the UK will leave the EU by the planned date of January 31st<\/sup>.<\/p>\n

This greater level of clarity has been welcomed by traders. The BOE, as such, is likely to keep its powder dry at this point. This is particularly true given that there is a growing risk later into 2020, following news that the PM will add a clause to Friday\u2019s bill to block parliament from extending the December 31st<\/sup>\u00a0deadline for the Brexit transitional phase.<\/p>\n

The bill means that the UK will leave the single market on that date regardless of whether the UK and EU have agreed on a trade deal.<\/p>\n

Technical Perspective<\/strong><\/h2>\n

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EURGBP found support at a test of the .8317 level this week and is currently retesting the broken .8477 support. If price moves back above here, focus will shift to a retest of the .8659 level, where e also have the bearish trend line from year to date highs. To the downside, the main level to watch is the .8317 region.<\/p>\n

By <\/strong>Orbex<\/strong><\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Orbex According to the stress tests carried out by the Bank of England this week, the UK banking sector is \u201cresilient\u201d enough to withstand even a worst-case\u00a0\u201cno-deal\u201d Brexit scenario. Worst Case Scenario Each of the UK\u2019s main banks underwent their yearly \u201cstress tests\u201d this week, designed to illuminate any weaknesses within the financial system. […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-162044","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/162044","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=162044"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/162044\/revisions"}],"predecessor-version":[{"id":162055,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/162044\/revisions\/162055"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=162044"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=162044"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=162044"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}