UK banks pass stress tests as Britain's "post-crisis period" ends - as it happened
Rolling coverage as the Bank of England publishes its annual health check of Britain's financial sector
- Press conference highlights
- Stress test results released
- BoE: May raise 'counter-cyclical buffer'
- Introduction: What are these Stress Tests?
2.13pm GMT
OK, time to wrap up.
1.55pm GMT
Our financial editor Nils Pratley is concerned that the BoE may letting the banks off too easily:
In the aftermath of the 2007-09 crisis, regulators seemed determined to set banks' capital thresholds far higher than is now deemed acceptable. The UK's Vickers commission and the international Basel committee spoke of core equity ratios of 18%. In the event, the Bank has settled on 11%.
Mark Carney, to be fair, gave a full explanation. First, capital is better designed these days - bondholders in the biggest banks can be forced to take pain in a crisis, for example. Second, "forward-looking" regulators are making better judgments on risks. Third, countercyclical buffers can be flexed up and down as conditions require.
Related: Bank stress tests fail to quell doubts
1.34pm GMT
These two charts explain why the Bank of England is fixing its eye firmly on the buy-to-let market, but isn't actually trying to puncture the credit market yet:
Buy to let borrowers are more sensitive to interest rate changes pic.twitter.com/IqD9eXxo7g
There's a time to worry about credit bubbles. In the UK, now is not that time. pic.twitter.com/lvbWttsbfe
1.09pm GMT
The rallying bank shares mean London's stock market is beginning December on the front foot.
Investors could bag themselves a better Christmas present than socks or an Adele CD by putting money into the stock market at the start of December, if history is a guide.
The so-called Santa rally, in which shares do well at the end of the year, is backed up by a surprising amount of evidence but there is less agreement on the cause of the trend.
Investors expect Santa rally to deliver https://t.co/kSCzS7cFSy
12.25pm GMT
Get your diaries out... the 2016 Budget will take place on Wednesday March 16:
Next Budget - Wed 16 March, says George Osborne.
12.04pm GMT
Mark Carney's broad message today is that Britain's financial sector is finally leaving its 'post crisis period'.
The Bank of England has declared that the UK's financial system has moved out of the "post-crisis period" but was not showing enough signs of overheating to require action to rein in credit.
Officials at the Bank clarified that in future they would seek to use regulation to strengthen lenders in good times rather than tame the credit cycle.
11.47am GMT
A quick peek at the commodities market shows why the Bank of England is cautious about the global economy - the iron ore price has hit a record low today:
Another fall in the iron ore price to new record spot price on @IronOreIndex - down 1.7% to $42.24/ton pic.twitter.com/CzOiuVDZHk
11.35am GMT
Steven Hall, banking partner at KPMG, has ploughed through today's stress test results (which are online here) and found a problem.
Although the banks had enough decent-quality capital to handle the 2014 test (based on a UK downturn) and also to pass this year's exam (which included more international risks), they would struggle to pass a combination of both scenarios.
"Another stress test and another festive celebration as all the banks pass. However the overall severity of the stress impact on CET1 capital levels is higher this year compared with last year.
The good news for UK banks is that by combining today's stress impacts with the additional capital accretion and asset reductions they have completed in 2015 would mean all 7 banks would pass the tougher stress test hurdle that the PRA will apply from next year. We calculate that in aggregate the sector has a buffer of 115bn of capital as of Q3 2015.
11.19am GMT
Barclays has now climbed to the top of the FTSE 100 leader board, up over 4% today.
The City is welcoming today's stress test results, and Mark Carney's insistence that regulators won't impose much tougher capital requirements.
UK banks shares are in celebratory mood this morning in the wake of the latest round of BoE stress tests. This comes from suggestions that the central bank is set to ease capital pressures on the sector after years of post-crisis reform in contrast to expectations of stiffer hurdles next year.
Barclays (BARC), however, is outperforming on account of its bigger exposure to riskier investment banking activities, an area it had been scaling back due to excessive pre-crisis risk-taking that led it into trouble, as well it last year having the lowest levels of capital for this year's new leverage ratio test.
Related: Barclays chief executive begins first day almost 300,000 out of pocket
10.38am GMT
A couple of photos from today's press conference:
10.20am GMT
David Parker, Head of UK & Ireland Banking at Accenture, says the Bank of England is right to be concerned about cybercrime risks (as Jon Cunliffe hinted earlier).
Parker says:
Interestingly, the Systemic Risk Survey [online here] published today sees a significant increase in those who now believe a cyber-attack poses a risk to the UK financial system. As banks look to offer new services to their customers in an increasingly competitive field, they create the potential for new vulnerabilities in their systems.
Financial institutions need to focus on both operational and technical ways to counter this threat. These range from changing the way they think about risk to investing in cutting edge cyber security systems.
10.11am GMT
Every silver lining has a cloud, though:
#Eurozone youth unemployment keeps rising: Rises to 22.3% in Oct from 22.2% in Sep. pic.twitter.com/jEy4txtatW
10.06am GMT
Some unexpected good news from the eurozone just landed.
The eurozone unemployment rate has dropped to 10.7%, lower than expected, and the best reading since December 2011:
Oct 2015 euro area unemployment rate 10.7% (Sept 10.8%), EU 9.3% (Sept 9.3%) #Eurostat https://t.co/LPH5op3q0e pic.twitter.com/9yutOfqhr0
10.01am GMT
Today's stress test results should give Britain's banks more confidence to boost their lending.
So argues James Belmont, director of risk and compliance at management consultants Baringa Partners:
The news that five of the seven banks passed the 2015 stress test, and the remaining two, RBS and StandardChartered, have taken appropriate steps to strengthen their balance sheets and will not be required to raise additional capital, will be given a guarded welcomed across financial markets.
It should give banks greater confidence to expand their credit to the real economy, helping fuel job creation and long-term investment.
The extended stress scenario, which included Chinese growth slowing "materially" and lower oil prices, had a greater impact on banks with significant retail and corporate presence in Asia and emerging markets, such as HSBC and Standard Chartered, and universal banks with material trade risk exposures to these markets, such as HSBC, Barclays, Standard Chartered and RBS.
9.51am GMT
Samuel Tombs, chief UK economist at Pantheon Macroeconomic, says the Bank of England seems relatively relaxed about the banking sector.
It judged the appropriate Tier 1 equity requirement for the banking system to be 11% of risk-weighted assets, less than the 13% held in aggregate by the major banks in September 2015.
And it judged that banks do not need to raise more capital in response to this year's stress tests, which they all passed by a healthy margin, even though the test's economic scenario was severe.
9.42am GMT
Breaking away from the Bank of England briefly.... a closely watched survey of British factories has shown that growth slowed last month, but remains fairly solid.
The UK manufacturing PMI, which measures activity across the sector, fell to 52.7 in November, down from October's 16-month high of 55.2.
"While the improvement in recent months is a welcome trend, scratching beneath the surface of the manufacturing numbers stills exposes a number of weaknesses.
Growth remains heavily focussed on the domestic consumer, while the strong gains at large-scale producers have yet to filter through to SMEs. A broadening of the expansion is necessary if the nascent recovery is to be sustained.
9.10am GMT
Mark Carney ends the press conference by repeating that he's not planning to slap the sector with tougher capital requirements:
That may be a not-too-subtle hint at those bankers who have complained that they might move their headquarters out of Britain to avoid its regulatory regime.
Mark Carney: "We will not increase capital by stealth." Wondering if the Governor is sending a polite message to HSBC?
9.06am GMT
Q: Could the Bank include a cyber attack in future stress tests?
9.00am GMT
Any time you increase the capital, there is a flow through to the cost of borrowing, Mark Carney says.
9.00am GMT
Q: What might future stress tests look like?
Carney reiterates that the regulators are not planning a new 'big wave' of capital requirements. Instead, they want to strengthen and clean up remaining problems in the system.
There will be changes that merit the 'back page'* of the paper, but not the front page.
8.53am GMT
Reminder: The Bank hasn't adjusted the counter-cyclical buffer today, but it has signalled that it might do so in March 2016.
8.51am GMT
Q: Would raising the counter-cyclical buffer in March 2016, to force banks to hold more capital, allow the Bank to leave interest rates unchanged for longer?
Carney explains that the buffer is a better way of handling risks than raising interest rates (which is a blunter tool).
8.46am GMT
Q: Why does the Bank of England have a counter-cyclical buffer, and under what conditions might it lower the buffer to encourage risk?
This is a complicated issue, Carney says, but worth understanding.
8.39am GMT
Q: Are you under any political pressure to water down your regulatory changes because of complaints from the banks?
No, absolutely not, Carney replies.
"I will say it again and I would like you to print it...there is no Basel 4. there is no big wave of capital to come."
8.35am GMT
Some banks will always need to take actions [to strengthen their capital base], but this is a well-capitalised system, says Mark Carney.
8.32am GMT
Carney making clear, boosting countercyclical capital buffer 1% would hit GDP 0.1% after 3yrs. Costs passed to borrowers & hit demand
8.30am GMT
Deputy governor Jon Cunliffe also weight in on the buy-to-let market.
A survey found that 15% of buy-to-let landlords said they would consider selling if they couldn't meet their mortgage payments from rental income, he says.
8.28am GMT
Carney says there is no question that the Bank has built resilience into the core of the banking system, to protect the UK from global turmoil.
8.26am GMT
Q: How concerned is the Bank of England about the buy-to-let market?
Carney says the BoE isn't taking any action now.
No action for now from BoE on buy-to-let market -- will await outcome of PRA review, effects of stamp duty surcharge https://t.co/zQQX7DTwx9
8.20am GMT
Onto questions...
Mark Carney says the motivation for raising its counter-cyclical buffer would be to make Britain's banks safer, not to rein in credit growth.
Mark Carney says the new counter cyclical buffer could knock 10 basis points off GDP, a "marginal impact"
8.16am GMT
Bank shares have risen at the start of trading in London.
Investors are welcoming the stress test results (which mean banks will not be forced to raise more capital).
8.15am GMT
Today's stress test results should reassure the UK public as we head into the Christmas period, Carney concludes.
Mark Carney says BoE is not on the hunt for ever increasing levels of capital for banks. Signals post-crisis regulatory chapter is over
8.13am GMT
Carney also warns that the global economic climate is challenging, with risks 'rotating' from emerging markets to advance economies and world growth still subdued.
8.10am GMT
Mark Carney confirms that the Bank of England is"actively considering" raising its counter-cyclical buffer.
As explained earlier, that would force banks to set aside up to 10bn in extra capital, to protect themselves from a downturn.
8.08am GMT
Mark Carney's press conference is being streamed live, here.
8.08am GMT
BoE governor Mark Carney is holding a press conference now, to explain today's stress test results - and the latest Financial Stability Report.
8.02am GMT
The Bank of England has also warned that it might take action to cool the buy-to-let markets.
Our City editor Jill Treanor explains:
The Bank has been warning for many months that it is concerned about the buy-to-let mortgage market.
While it did not take immediate action to cool this sector - where lending has risen 10% in the first nine months of the year - it said it was reviewing the lending criteria adopted by firms and stands "ready to take action."
Related: Stress tests: Bank of England flags up buy-to-let concerns
7.56am GMT
A Treasury spokesperson claims that Britain's banks are "well placed" for the future, even though RBS and Standard Chartered only passed the tests because they're already taking remedial action.
"Today's stress test results are testament to the progress that has been made in strengthening Britain's banks.
"The government's plan to protect Britain's economy and extend opportunities for working families requires a resilient banking system capable of weathering future financial storms both at home and abroad.
7.49am GMT
Nationwide is unruffled by the stress test results.
It says:
The results of the test confirm that under these stress conditions, Nationwide would remain profitable, with minimum stressed ratios for CET1 and leverage of 19.1% and 4.1% respectively, in each case substantially above the regulatory hurdle rates set for this stress test of 4.5% and 3%
7.47am GMT
RBS has also issued a statement to the City, confirming that it passed the test - thanks to recent measures taken to strengthen the bank.
"We are pleased with the progress we have made relative to the 2014 stress test, but recognise we still have much to do to restore RBS to be a strong and resilient bank for our customers.
"During 2015 we have continued to strengthen our core capital ratio and improve our leverage position. Following the divestment of Citizens in October 2015, our pro-forma CET1 ratio at 30 September 2015 would have been 16.2% and our leverage ratio 5.6%."
7.43am GMT
Standard Chartered says it is pleased to have passed the stress test, thanks to the "strategic management actions" which it is taking this year (including raising $5bn from shareholders).
"We are pleased to have met the PRA stress test thresholds through a significant and prolonged stress scenario. The results of the test demonstrate our resilience to a marked slowdown across the key markets in which we operate. The test was conducted on our balance sheet as at the end of 2014.
Since then we have made further significant progress in strengthening our capital position. We are operating at capital levels above current minimum regulatory requirements and have a number of additional levers at our disposal to further manage capital.'
7.40am GMT
This chart shows how the banks capital ratios would fall during the crisis scenarios which the BoE tested:
For example, the CET1 ratio of Nationwide, with its focus on UK household lending, is projected to fall to a trough just 0.7 percentage points below its end-2014 starting level.
In contrast, with the majority of its exposures in Asia, Standard Chartered's CET1 ratio is projected to fall by 5.1 percentage points to its low point. These results differ from those of the 2014 stress scenario, which incorporated larger shocks to UK economic activity and house prices.
7.30am GMT
Barclays has issued a statement, confirming it passed the stress tests:
It says:
Under the BoE's assessment of the effects of the modelled adverse stress scenario, Barclays' minimum stressed Common Equity Tier 1 ("CET1") ratio over the period 2015-19 was 7.3% after the impact of strategic management actions.
The minimum stressed CET1 ratio before the impact of strategic management actions of 6.8% exceeded the 4.5% minimum threshold by a significant margin.
7.28am GMT
My colleague Jill Treanor has been locked in the Bank of England since before 5am, reading the stress tests and the Financial Stability Report.
She's now broken free, and is tweeting the key points:
Bank of England puts banks on notice that they could be forced to hoard 10bn of capital in anticipation of a economic downturn
Bank of England could set this so-called counter cyclical capital buffer against UK assets at 1% in March next year
RBS and Standard Chartered would have been forced to raise more capital if they had not taken steps during 2015 to bolster their capital
Bank of England takes no immediate action on buy-to-let but assessing lending standards of lenders: "stands ready" to act
Bank of England also concerned about cyber risk - "continues to pose a threat to the financial system"
7.25am GMT
Watch UK banks on open - could need set aside mor ecapital if #BOE thinks countercyclical buffer needs to rise in March as economy recovers
7.25am GMT
Another important development - the Bank of England has signalled that it will soon want Britain's banks to hold up to 10bn more capital.
It has concluded that the credit cycle has moved to a more 'normal phase', which means it will soon be time to deploy its "countercyclical capital buffer".
"Following the global financial crisis, there was a period of heightened risk aversion and retrenchment from risk-taking.
The system has now moved out of that period."
7.22am GMT
This chart shows how Standard Chartered and RBS were found to have the lowest capital reserves when the stress test scenarios were run:
7.15am GMT
In a nutshell:
Even though both @RBSGroup &Standard Chartered fell short in part of #BOE stress tests, both done enough capital raising to pass overall
7.12am GMT
The Stress Test results are online here.
7.10am GMT
Here's the official results from the Bank, confirming that five banks passed the tests straight away - while RBS and Standard Chartered had the weakest positions:
7.04am GMT
Here we go!
All seven banks have passed the tests.
*BOE: RBS MISSES INDIVIDUAL CAPITAL GUIDANCE IN STRESS TEST
6.50am GMT
The Financial Times also reckons that Britain's biggest banks will all pass this year's stress test, but it could be a close-run thing....
The test will model a drop in Chinese economic growth from about 7% to 1.7%, causing property prices to crash in China and Hong Kong. It will also examine the impact of a financial market crisis, including the default of several securities trading counterparties.
This year's test still models tough conditions in the UK economy, which contracts by as much as 2.3%, while residential property prices drop a fifth and there is a prolonged period of deflation and zero interest rates.
6.44am GMT
Last year, the Co-operative Bank failed the BoE's stress tests; it simply didn't have enough capital to ride out a property downturn.
That forced Co-op to start reducing its loan book, meaning it is not taking part this time.
Related: Bank of England stress tests to include feared global crash
6.32am GMT
Good morning.
We're about to find out whether Britain's biggest banks are strong enough to survive another financial crisis.
The Bank of England today releases the results of its annual stress tests on UK's biggest #banks. @bankofengland
Speculation that the Bank could impose more stringent capital rules on banks was sparked by remarks last week by Andy Haldane, the Bank's chief economist, that consumer credit, and personal loans in particular, had been "picking up at a rate of knots".
His view that the Bank might want to look "fairly carefully" at this area had led to expectations that the Financial Policy Committee (FPC), set up to look for bubbles in financial markets, might use new powers to demand banks hold more capital against riskier lending operations.
We find out shortly how worried Mark Carney feels about aspects of Britain's economy https://t.co/xijvGzqUg1 pic.twitter.com/B2fqcQ3wRF
Continue reading...