For the first time since the financial crisis all UK banks passed the Bank of England’s annual stress tests. The tests were bought in after the crisis to test the financial institutions' ability to continue trading in further market and economic turmoil. In the past this has shown that most banks have needed to re-capitilise in order to continue trading. However today’s test showed that for the first time all banks were financially stable, and were able to withstand the rigorous conditions put to them in the test.
Some of the factors in the test plunged house prices by 33% and rose interest rates from 0.5% to 4%, as well as seeing unemployment jump to 9.5%. There was also a big emphasis on whether banks could function correctly in a shambolic post-Brexit scenario, and again that showed that the banks would be in a strong financial position. However with so many unanswered questions surrounding Brexit it is very hard to predict just what the scenario would be in a no deal post-Brexit Britain.
In another interesting point, in a potential nudge to the government, the BoE offered out a checklist of items it believes would make for a smoother path into post Brexit life for our financial institutions. These included a timely agreement and implementation plan, something that has never seemed further away. On the open this morning we will be looking at the banks for a share price reaction, however we will also focus on insurers after the report showed that EU companies would not have permission to collect premiums after Brexit.
Sterling has been little moved by the news and is still looking to test the upside highs set at the back end of yesterday’s session.