pound signThe Bank of England has launched its most extensive stress tests yet of the UK’s lenders that will force banks to model a 30{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} depreciation in the pound, a jump in unemployment to 12{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48}, a 35{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} fall in house prices and a 30{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} fall in the stock market. This when coupled with the recent recession, will equate to a perfect storm of economic factors.

Under this test all lenders will be required to maintain a core tier 1 capital ratio of a minimum of 4.5{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48}, with the Bank of England warning that there would be a “strong presumption” that any lender falling below this level would have to raise more capital. Worryingly for banks, even if they pass this test they could still be asked to raise more capital or take other actions to strengthen their balance sheets if regulators identify a particular area of concern.

The real impact for UK business is that this is not going to make lending cheaper or easier at a time when companies are looking to grow and shake off the last vestiges of the recession.