Welcome to the latest edition of The Current Account! This month's headlines look at the highlights from the Bank of England’s 2022/23 cyclical stress testing results, along with the revolution brought by digital wallets, highlighted by Apple's Tap to Pay service.
UK Banking System's Resilience in Stress Tests and Bank of England's Risk Management Measures.
- The Bank of England's 22/23 stress test aimed to assess the resilience of the UK banking system against various shocks such as recessions, asset price falls, interest rate changes, and misconduct costs.
- Despite the positive results of these stress tests, the Bank of England warns of potential vulnerabilities in the global financial system, including a worsening economic outlook, high inflation, and geopolitical tensions.
- The Bank's operational decisions include the unwinding of quantitative easing, the introduction of the Short-Term Repo to maintain interest rates and other strategic moves influenced by Monetary Policy Committee (MPC) decisions.
- The UK's eight largest lenders, including Barclays and Lloyds Banking Group, all passed the stress tests with sufficient capital to continue lending through a severe economic downturn, including a housing market crash, surging unemployment, and interest rates as high as 6%. The banks were found to have high-quality liquid assets, with a market value of £1.4 trillion, providing ample resources to continue lending in the event of liquidity stress.
- The British pound reached a new peak, hitting its highest level in 15 months following the results of the stress test indicating that confidence in the economy grew stronger, leading to increased expectations of further rate hikes by the BoE in the future.