The Bank of England said on Wednesday that UK banks are “resilient and strong enough to support households and businesses”, but also that there is an “urgent need” to increase resilience in market-based finance.
In the aftermath of the collapse of Silicon Valley Bank in the US and the acquisition of Credit Suisse by UBS, the BoE said the regulations in place for UK banks mean that they have “significant” financial resources to absorb shocks.
“UK bank profits are currently healthy, and UK banks have no significant exposures to banks which have failed or are in trouble,” it said. “We judge that UK banks are resilient and are strong enough to continue supporting households and businesses.”
It said the Financial Policy Committee has been “closely monitoring” the SVB collapse and troubles at Credit Suisse and judges that the UK banking system remains resilient.
The Bank also pointed out that since the financial crisis of 2008, UK authorities have put in place a range of “robust” prudential standards, designed to ensure levels of resilience which are at least as great as those required by international baseline standards. These include a liquidity framework and capital requirements that are calibrated to the risks faced by individual firms, and apply to all UK banks.
The BoE said the UK banking system is well capitalised, with the aggregate Common Equity Tier 1 (CET1) ratio for major UK banks standing at 14.6%, and at around 18% for smaller lenders.
“Asset quality is stronger now than in the run up to the global financial crisis,” it said. “And stress tests have shown that the banking system is resilient to a wide range of severe economic outcomes, including in a period of higher interest rates.”
Major UK banks have large liquid asset buffers, the BoE said, around two-thirds of which are currently either in the form of cash or central bank reserves.
However, the BoE also highlighted vulnerabilities in certain parts of market-based finance (MBF), “which could crystallise should there be further volatility or sharp movements in asset prices, amplifying any tightening in credit conditions”.
