The Bank of England has warned of an “economic storm” on the horizon and told British lenders
to ramp up their capital buffers to ensure that they can withstand worsening global conditions.
Both the International Monetary Fund and OECD have said that England is more susceptible to
a recession and persistently high inflation than other Western economies, all of which are
struggling with energy and commodity price shocks.
“The global economic outlook has deteriorated markedly. Global financial conditions as a whole
have tightened significantly,” Bank of England Governor Andrew Bailey said at a news
conference after the British central bank issued its latest “Financial Stability Report.”
British banks can withstand a severe economic downturn, the central bank said, although capital
ratios are forecast to decline in coming quarters.
Members of the Financial Policy Committee confirmed that the Bank of England will double the
counter-cyclical capital buffer rate to 2% of risk weighted assets in July 2023.
The rate represents an extra buffer for banks such as HSBC (HSBA), Barclays (BARC), and
Lloyds Banking Group (LLOY) that varies depending on economic conditions.
Increasing the buffer to 2% means British banks will need an additional 11 billion pounds ($13.2
billion U.S.) of capital, the Bank of England said.
The central bank also said it will begin its 2022 stress test of banks, delayed due to the war in
Ukraine, this September.