British Banks Fit to Weather Brexit and Covid, BOE Says

(Bloomberg) -- Britain’s biggest banks are strong enough to weather the double-blow from the pandemic and Brexit, the Bank of England concluded in its latest health check even as it warned of disruption if the transition period ends without a deal.

The BOE said HSBC Holdings Plc, Barclays Plc and other major lenders have sufficient capital to absorb losses in the coming months and the U.K. financial system can cope with the fallout from Brexit even without a trade agreement.

“Most risks to U.K. financial stability that could arise from disruption to the provision of cross-border financial services at the end of the transition period have been mitigated,” the BOE said in a statement on Friday.

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However, the central bank warned financial firms, particularly those in the European Union, may face stark changes, with derivatives traders seeing their access cut to London’s $200 billion-a-day interest rate swap market.

“I would have thought it was in the best interests of people in the European Union to want to have access to that global financial center just as they’ll want to have access to New York as a global financial center,” BOE Governor Andrew Bailey said at a press conference Friday.

“They have to decide what they want. It’s not for us to decide that,” Bailey said.

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The message from the BOE, coming before a Sunday deadline for Brexit negotiations to make progress, shows the rising worries over market turmoil that would follow an historic rupture in financial market ties. The European Union is ramping up no-deal contingency plans, while over the longer term big banks in the City of London are moving hundreds of billions of dollars in assets to the bloc.

Douglas Flint, chairman of Standard Life Aberdeen Plc, said London was ready for any outcome. “You have to prepare for the worst and then hope to get a better outcome that enables you to improve on that position,” he said in an interview with Bloomberg TV on Friday. “I think the city is ready for a no-deal and has already planned and made the arrangements so that, most importantly, our clients are able to access the services they need without interruption.”

Meanwhile, the BOE is giving U.K. banks more freedom to use their capital by keeping the minimum countercyclical buffer, which is designed to grow in strong times for use in a crisis, at 0% until at least the end of 2021, and any changes would not take effect until late 2022.

This assessment of the industry’s health comes a day after the BOE said lenders could resume dividends, ending a de-facto ban imposed since March to conserve capital during the first Covid-19 outbreak. In August, the BOE pared back its predictions for loan losses stemming from the pandemic.

The BOE also said Friday it is reviewing the mortgage market to ensure banks are still lending to homebuyers amid the economic pain of the pandemic and tighter rules on high loan-to-value debts.

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