BRITISH banks responded rapidly to the financial crisis, raising capital levels successfully to put themselves in a strong position to resist any further downturn, according to a new paper out today from the Bank of England.
The analysis of last year’s bank stress tests shows that a deep double dip would not see any bank devastated by rising credit losses.
But the study also found banks may be relying too much on wholesale funding, and are vulnerable to haircuts on European sovereign debt holdings.
The study considered the impact of a deep double dip where GDP would contract at roughly three per cent in 2012. That would see commercial property prices fall to below 50 per cent of the 2007 level.
“An increase in credit losses following a severe global recession was not identified as a prominent risk to the banking system,” said the report. “It is possible that the result reflected conservative provisioning by banks over the period before the test was run,” it argued.