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1 December 2015
UK banks shares are in celebratory mood this morning in the wake of the latest round of Bank of England (BoE) stress tests. This comes from suggestions that the central bank is set to ease capital pressures on the sector after years of post-crisis reform in contrast to expectations of stiffer hurdles next year. Barclays (BARC), however, is outperforming on account of its bigger exposure to riskier investment banking activities, an area it had been scaling back due to excessive pre-crisis risk-taking that led it into trouble, as well it last year having the lowest levels of capital for this year’s new leverage ratio test. While all passed, peers Royal Bank of Scotland (RBS) and Standard Chartered (STAN) only did so thanks to bolster buffers and ensure targets are hit. Both RBS and Lloyds Banking Group (LLOY) were close to the mark last year, but LLOY turnaround efforts have served it while RBS still clearly has much work to do. Despite modelling for major market shocks, many still ask if the Bank Of England's tests are tough enough after what we saw from the recent financial crises. While sector progress has clearly been made in shoring up buffers, there is likely still work to be done by both banks and their regulator to regain consumer confidence.
Mike van Dulken, Head of Research
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