Bank of England to loosen post-financial crisis capital rules for banks

Russ Mould, investment director at AJ Bell, said: “The UK banking sector has passed the Bank of England’s stress test with flying colours.

“The industry and authorities learned some valuable lessons from the global financial crisis in 2008 and banks have subsequently become stronger entities.

“No-one wanted a repeat of what happened 17 years ago when various banks had to be bailed out.

“That crisis led to UK banks being pushed to have more capital to withstand any shocks.

“The latest stress test means that major UK banks would be able to cope with a severe decline in the economy and provide ongoing support to consumers and businesses.

“These tests are held periodically rather than when there are alarm bells flashing.

“Admittedly, the Bank’s Financial Policy Committee says threats to financial stability have increased this year, and it flags the risks of a sharp correction to financial markets given stretched US equity valuations.

“However, it says UK household and corporate indebtedness remains low.

“Importantly, the stress test results have given the Bank of England confidence to cut its estimate of how much capital banks need to hold.

“The government will no doubt welcome this news, given its desire to encourage more lending to drive economic growth.”