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.
While the BOE didn’t target Brexit by name in its 2017 health-check scenarios published on Monday, it said risks to financial stability will be influenced by the “orderliness” of that process. Separately, banks must submit their contingency plans to the BOE’s Financial Policy Committee for approval and oversight, as the regulator seeks to ensure the supply of credit won’t be disrupted even if firms lose untrammeled access to the single market.
U.K. output plunges 4.7 percent in the first year of the stress test’s adverse scenario that covers seven U.K. banks, including HSBC Holdings Plc and Barclays Plc. The regulator flagged “rapidly” rising household debt as a concern, and began an investigation into the quality of new consumer lending. It also asked banks to explain how they’ll have to alter their business plans if profitability doesn’t improve.