The eight largest UK banks will be able to cope with a sharp economic downturn in the country, a jump in unemployment and a collapse in real estate prices, according to the results of stress tests conducted by the Bank of England. The British Central Bank conducted stress tests for the first time in two years, last year it did not do so because of the pandemic coronavirus, writes the Financial Times. The Bank of England did not specifically assess the potential impact of the new COVID-19 “omicron” strain, but the stress scenarios it considered included the possibility of a more severe pandemic than in 2021.

The stress tests were conducted for banks Royal Bank of Scotland, HSBC, Barclays, Barclays, Standard Chartered, Lloyds, Santander, Nationwide and Virgin Money. The latter was stress tested for the first time. The worst-case scenario considered by the Bank of England included an £800 billion fall in UK GDP between 2020 and 2022, a jump in national unemployment to 12% and a 33% fall in residential and commercial property prices. In reality, the UK economy has lost less than £300 billion as a result of the pandemic, unemployment is at 4.3%, house prices are rising at their highest rate in 15 years and commercial property values have plummeted as offices have been emptied due to the pandemic.

“The UK banking system has coped well with the pandemic,” said Bank of England Governor Andrew Bailey.

As such, the British central bank will bring back the requirement for banks to maintain a countercyclical capital buffer, which it abandoned in 2020, to allow financial institutions to continue lending even in the event of severe losses due to the pandemic. By December 2022, the buffer should be 1 percent of assets. Banks’ capital currently exceeds the norms, and they won’t have to raise cash or cut dividends to meet the new requirements, Bailey said.