LONDON: Britain’s banks could deal with a hard Brexit next March if need be, Bank of England Governor Mark Carney said on Wednesday, rejecting European Union warnings that lenders are inadequately prepared.
The BoE’s Financial Policy Committee (FPC) said banks in Britain are holding enough capital and will not need any more to face any turbulence in markets if Britain leaves the EU next March without a deal.
On Monday, the European Union’s banking watchdog, the European Banking Authority (EBA) said banks had failed to make enough progress in their Brexit preparations and should not expect help from “miracle” public intervention.
“With respect, the EBA’s comments earlier this week were incomplete,” Carney said in a news conference. “They did not acknowledge the temporary permissions regime … which has been very clearly signalled by the UK government.”
Carney said British authorities’ preparation of banks for Brexit had been “rock solid” and that the BoE continued to judge that the UK banking system could support the real economy through a disorderly Brexit.
The FPC said capital levels at banks were now high enough that it would leave unchanged their so-called countercyclical capital buffer or CCYB at 1 per cent, 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.
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.
