The Bank of England has published the results of the 2025 stress test: all seven largest lenders in the country passed the examination. The banks will withstand an economic shock worse than the global financial crisis of 2008 and will continue to lend to the economy. The CET1 capital strength ratio fell from 14.5% to 11%, but no bank requires additional capital.
This is reported by Finway
Extreme Scenario: Deeper Recession than in 2008
The Bank of England tested the seven largest lenders for resilience to a global supply shock. The scenario included a deep recession in countries around the world, rising inflation, and central banks raising interest rates to bring inflation back to target levels.
Stress test conditions:
- UK GDP falls by 5% at the start of the scenario.
- Unemployment nearly doubles to a peak of 8.5% (as during the 2008 crisis).
- Interest rates rise to a peak of 8%, then decrease.
- House prices fall by 28%.
The seven tested banks together provide about 75% of lending to the UK economy. All lenders passed the preliminary stress test by the Bank of England in July 2023.
Capital Will Withstand the Pressure
The total CET1 (Common Equity Tier 1) capital ratio—a key indicator of capital strength—started at 14.5% and fell to a low of 11% in the first year. This means that even in the worst-case scenario, banks maintain sufficient capital to continue lending.
Tested institutions:
- Barclays Plc.
- HSBC Holdings Plc.
- Lloyds Banking Group Plc.
- Nationwide Building Society.
- NatWest Group Plc.
- Santander UK (British branch of Banco Santander).
- Standard Chartered Plc.
No individual bank was required to strengthen its capital position based on the test results.
“The banking system in Britain will be able to continue supporting the economy, even if economic conditions turn out to be significantly worse than expected, allowing it to contribute to long-term sustainable economic growth,” the Bank of England report states.
Regular testing was introduced in 2014 after the global financial crisis to check whether the sector has enough capital to withstand economic difficulties. Tests are conducted every two years.