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Bank of England Governor Mark Carney said there were some signs that the approach of Brexit was reducing the appeal to investors for shares in UK-focused companies but not in bigger, more global firms or for British government debt.

Threadneedle Street officials said they were aware that the potential risks deriving from a hard Brexit, coupled with the threat of a global recession and hefty fines from global regulators, could put the banking sector under enormous pressure.

"This scale of loss, relative to their assets, would have wiped out the common equity capital base of the United Kingdom banking system ten years ago", the Bank said, adding that the tests showed losses on such a scale could now be absorbed.

Last year both Barclays and Royal Bank of Scotland failed the test when examined on the basis of how much capital they held at the start of the year.

Carney added that a disorderly Brexit "is not a good scenario... it is one we are all working to avoid as it has some quite material economic costs - even if the financial system continues to operate through it".

"In such circumstances, capital buffers would be drawn down substantially more than in the stress test and, as a result, banks would be more likely to restrict lending to the real economy".

The Financial Policy Committee raised the system-wide United Kingdom countercyclical capital buffer rate, which applies to all banks, to 1% from 0.5%.

The Bank's stress tests results showed the UK's banking system could cope with an extreme economic stress scenario, equivalent to the worst possible outcome of the UK's departure from the EU.

However, the pair passed the latest tests as they have already taken action to strengthen their balance sheets since the end of past year.

Spreadex financial analyst Connor Campbell suggested the tests proved the position of Britain's financial sector had improved considerably over the last decade.


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