LONDON (Reuters) – A “desk top” stress test has shown that top banks and building societies could keep lending to an economy hit by anticipated fallout from the coronavirus pandemic, the Bank of England said on Thursday.
The BoE’s interim Financial Stability Report (FSR) said the stress test was based on an economic scenario outlined by the Bank’s Monetary Policy Report (MPR).
Under the MPR scenario, Britain’s GDP drops by almost 30% in the second quarter versus the fourth quarter of last year and recovers as lockdown restrictions are lifted.
Britain has been in lockdown since mid-March and the government is expected to announce some easing of restrictions in the coming days.
The stress test showed that banks have the capital buffers to withstand even greater losses than those that result from the MPR scenario, the FSR said.
“Overall, in the desktop stress test based on the MPR scenario, banks incur total credit losses of just over 80 billion pounds ($98.86 billion).”
“Overall, banks have the capacity to assist businesses in meeting cash-flow deficits by expanding the supply of credit to the economy.”
(Reporting by Huw Jones; editing by Maiya Keidan and Jason Neely)
