Banks could support UK economy in disorderly Brexit: BoE

LONDON: Britain's lenders could support the economy through a "disorderly" Brexit, the Bank of England said Tuesday, as the sector passed its latest round of stress tests.

The central bank ruled however that the nation's seven top retail banks must hold another £6.0 billion ($8.0 billion, 6.7 billion euros) in combined capital reserves to safeguard against crisis.

"The stress-test scenario ... encompasses a wide range of UK macroeconomic risks that could be associated with Brexit," read a statement from the BoE's Financial Policy Committee (FPC).

"As a result, the FPC judges the UK banking system could continue to support the real economy through a disorderly Brexit."

BoE governor Mark Carney, speaking at a press conference, warned however that such a Brexit was "in nobody's interest" and would have "an economic impact on households and businesses".

Carney added that a disorderly Brexit "is not a good scenario... it is one we are all working to avoid as it has some quite material economic costs -- even if the financial system continues to operate through it".

Britain will leave the European Union in March 2019 after the nation voted last year to leave the bloc, but the terms of its exit and future trade relationship are under negotiation. There are concerns a deadlock in the talks could see Britain leave without a trade deal in place, potentially causing severe disruption to its economy.

The stress assessments were designed to see whether the banking sector can weather a fierce worldwide recession, crashing house prices and soaring unemployment.

However, the BoE warned that both a chaotic Brexit and a global recession -- combined with misconduct costs -- could result in "more severe" economic fallout than the tests anticipate.

The FPC regulator, established after the global financial crisis and tasked with safeguarding Britain's financial system, added it would lift its so-called capital buffer rate from 0.50 percent to 1.0 percent from November 2018.

That will give Britain's retail lenders combined capital reserves of £11.4 billion.

The regulator added it would re-examine the adequacy of the buffer rate in light of its findings.

"The combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test," the FPC said in its Financial Stability Report.

"In such circumstances, capital buffers would be drawn down substantially more than in the stress test and, as a result, banks would be more likely to restrict lending to the real economy."