LONDON (Reuters) – Britain’s banks have enough funds to keep lending to the economy even under the deep recession scenario outlined by a government watchdog, Bank of England Deputy Governor Sam Woods said on Wednesday.
The BoE has allowed banks to tap some of their capital buffers to support up to 190 billion pounds ($238 billion) of lending, well above the amount they lent last year, Woods said.
“We go into this with a well capitalised banking sector,” Woods told a meeting of parliament’s Treasury Select Committee.
It was not clear that the scenario outlined by the Office for Budget Responsibility on Tuesday was worse overall for banks than last year’s BoE stress test for lenders, Woods said.
The OBR said Britain’s economy could shrink 35% during the three months to June due to coronavirus shutdowns, then bounce back sharply afterwards, giving an overall economic hit for the year of about 13% – still the largest in more than 300 years.
“Banks have ample capacity from a capital point of view,” Woods said.
A “huge support package” from the state also reduces the hit on the banking system, Woods said.
Sarah Breeden, executive director for bank supervision at the BoE, said Britain’s biggest companies have drawn tens of billions of pounds on credit lines from their banks, but they have yet to spend it.
“In the near term, for larger companies that risk of default does not feel very immediate,” Breeden said. “The shock hasn’t yet hit in scale,” she said.
Reporting by Huw Jones and David Milliken