Responding to the results of the Bank of England stress tests, Rob Smith, Banking Partner KPMG UK, comments
“The Bank of England is keen to paint a positive picture as we head into Brexit. The EBA put UK banks on the naughty step earlier this month whereas the Bank of England is clearly keen to emphasise their robustness.
“Our banks are very well capitalised, but, the impact of the accounting standard, IFRS9, was keenly felt under these scenarios. When you look at the results in light of a ‘fully loaded’ IFRS9, two banks fall well below the ‘pass mark’ with their capital severely depleted.
“Despite, once again, the banks all passing, investors and bank staff may be unnerved when they delve into the detail. Dividend payments drop to almost zero from £28 billion, meanwhile bonuses fall from £11bn to just over £1bn over the first two years of the stress.
“Further, the Bank of England raised several issues with the models used to perform the tests including a lack of understanding by Board members. This could cause some to question how reliable the results actually are.”
See the Bank of England stress test results here: https://www.bankofengland.co.uk/stress-testing/2018/stress-testing-the-uk-banking-system-2018-results
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