Britain’s banks could deal with a hard Brexit next March if need be, the Bank of England said on Wednesday, rejecting European Union warnings that lenders are inadequately prepared, Reuters reports.
The BoE’s Financial Policy Committee (FPC) said banks in Britain are holding enough capital and won’t need any more to face any turbulence in markets if Britain leaves the EU next March without a deal.
“The FPC continues to judge that the UK banking system could support the real economy through a disorderly Brexit,” the FPC said in a statement.
On Monday the European Union’s banking watchdog said banks had failed to make enough progress in their Brexit preparations and should not expect help from “miracle” public intervention.
The FPC said capital levels at banks were now high enough that it would leave unchanged their so-called counter cyclical capital buffer or CCYB at 1 percent, binding from the end of November.
The committee had said in March it would review this month whether the buffer should be raised due to other risks that build up over the course of a credit cycle. These include mortgages granted at high loan-to-income ratios that bump up against the BoE’s ceiling and unsecured consumer lending.
This buffer aims to ensure that banks build up capital to guard against risks as the credit cycle picks up, which they can then draw on during a downturn. It applies on top of other internationally-required buffers.
The FPC said on Wednesday that consumer credit continues to expand rapidly, but measures already taken to stop overheating were already having an impact, with banks reporting a significant tightening of unsecured credit.
The FPC said Britain has made good progress in ensuring that outstanding derivatives contracts do not pose a risk to the British economy if there is no Brexit transition deal in place by next March.
However, it said that Britain and the EU need to take action. The EU has yet to say what steps it would take to avoid potential disruption to 29 trillion pounds of uncleared swaps contracts if there is a hard Brexit.
The FPC also said it will launch in 2019 its first pilot stress test to check on the ability of a select number of lenders to withstand a cyber attack.
Risks from the global economy remained material and have increased, the BoE said, noting that trade tensions have intensified.