UK banks told to triple holdings by Bank of England to prepare for Brexit

  • Some UK lenders have been told by the Bank of England to triple their holdings of easy-to-sell assets in order to cope with a potential meltdown in financial markets when the country leaves the European Union.
  • Banks will now need to hold larger amounts of assets for 100 days, rather than the usual 30 days, to withstand severe stress testing conditions.
  • The Bank of England brought in regulations last year but has tightened them for certain UK lenders, the Financial Times reported.

The Bank of England has taken dramatic steps to ensure that UK banks are able to lend in the event of a catastrophic no deal Brexit.

Certain UK lenders have been told to triple their holdings of easy to sell assets in the event of a meltdown in financial markets, the Financial Times reported, citing people familiar with the matter.

The recommendation comes on the back of new regulations brought in by the UK central bank’s Prudential Regulation Authority (PRA) last year and mirrors severe stress testing for lenders. It assumes that banks will need the additional holdings in the event that institutions stop lending to each other or additionally are unable to swap sterling for dollars, as happened to some banks during the financial crisis.

Banks will now need to hold larger amounts of assets for 100 days, rather than the usual 30 days, to withstand severe stress testing conditions.

Banks such as Barclays and Royal Bank of Scotland are said to be under the greatest PRA scrutiny with the Bank of England predicting extreme liquidity difficulties in the event of a no-deal Brexit. The UK is set to leave the EU on March 29.

The Bank of England has activated a special swap line with the European Central Bank and has launched weekly auctions to ensure bans do not run out of cash in the event of a no-deal Brexit.

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