“UK banks are now significantly more resilient than before the global financial crisis. Capital requirements for the largest banks have risen ten-fold. Their holdings of liquid assets have increased four-fold. Their trading assets are down by a third, and inter-bank exposures have shrunk by two-thirds.
But he said, the tests demonstrate that the appropriate Tier 1 equity requirement for the banking system, in aggregate, is 11% of risk weighted assets. “Of this, 9.5 percentage points should be in the highest quality common equity capital and roughly half should be buffers, which are macro-prudential tools for use in stress,” he said.
He was also quick to point out that the bank currently has no plans for a new wave of capital regulation coming. There is no ‘Basel IV.’ Our objective has never been to raise capital without limit. Or by stealth,” he explained.
Russ Mould, investment director at AJ Bell, said: “Although all banks passed the stress test, and their share prices are responding favourably, they continue to face strong headwinds.”
“Banks remain highly complex, tightly-regulated firms operating in fairly mature markets and most are still in retrenchment mode, with cost-cutting rather than top-line growth driving earnings. Ultimately you cut bone not flesh and underinvestment in IT and services will further play into the hands of the challenger banks,” said Mould.
“While the big seven banks will collectively sigh with relief today, they will remain under the microscope for some time to come,” he concluded.
