BoE's Financial Stability Report was positive - UOB

Analysts at UOB explained that the Bank of England (BoE) released its Financial Stability Report and the results of the annual bank stress test exercise. 

Key Quotes:

"The latest 2017 stress test – based on a scenario more severe than the GFC – indicated that banks would incur losses of around GBP50bn in the first two years of the stress."

"Whilst this scale of loss would have wiped out the common equity capital base of the UK banking system a decade ago, the test showed that these losses can now be absorbed within the buffers of capital banks have on top of their minimum requirements."

"No bank needs to strengthen its capital position as a result of the stress test. Despite this result, the Bank’s Financial Policy Committee (FPC) announced that effectively from 28 November next year, the countercyclical capital buffer rate will rise from 0.5% to 1%."

"This will require banks to incorporate some of the capital they currently have in excess of their regulatory requirements into their regulatory capital buffers. The FPC’s assessment that is 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”."

"A combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test, so 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."