LONDON: The Bank of England will subject the U.K.’s biggest lenders to a stress test featuring a deep economic slump and a sharp depreciation of the pound as the country prepares for the impact of withdrawal from the European Union.
U.K. output plummets by 4.7 percent in the first year of the 2017 stress test of seven U.K. banks, including HSBC Holdings Plc and Barclays Plc. The health check’s adverse scenario also foresees a 32 percent decline of the pound against the dollar and a 5 percent inflation rate by end-2018. While the BOE didn’t target Brexit by name in the stress-test scenarios published on Monday, it said risks to financial stability will be influenced by the orderliness of that process. Banks have also been asked to submit their post-Brexit contingency plans to the regulator for approval. Prime Minister Theresa May plans to trigger departure talks on Wednesday in a letter to other EU leaders. The other lenders covered by this year’s test are Lloyds Banking Group Plc, Nationwide Building Society, Royal Bank of Scotland Group Plc, Santander U.K. Plc and Standard Chartered Plc. The seven firms account for about 80 percent of the outstanding stock of lending by banks supervised by the BOE’s Prudential Regulation Authority.
