For the fourth year in a row the Bank of England (BoE) has run its checks to see how the UK banking sector would withstand another financial crisis. For the most part investors in the sector can now breathe a sigh of relief.

For the first time since 2014 no bank needs to raise cash in the wake of the stress test although Barclays (BARC) and Royal Bank of Scotland (RBS) would have fallen below their minimum capital levels in the scenario run by the BoE, which it says is equivalent to the worst possible outcome from Brexit.

Top of the class is Lloyds Banking (LLOY) which would retain a sufficient capital buffer in the stressed scenario even before management action. Most shares in the sector traded modestly lower following the results of the tests on 28 November.

AJ Bell investment director Russ Mould comments: ‘The tests show RBS and Barclays have the lowest margin for error in the event the Bank of England’s stress-test scenario comes to pass and this may be reflected in their relatively lowly valuations.’

Separately the BoE wants UK banks to hold an extra £6bn buffer to cover risks beyond Brexit including misconduct costs and global debt     levels. (TS)

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