Banks showed sufficient resilience when tested against an economic scenario "more severe than the global financial crisis", according to the results of the test (66-page / 2.4MB PDF). The same scenario, when applied to the financial position of the UK banking system 10 years ago, would have wiped out banks' capital buffers.
This is the first time since stress testing was introduced in 2014 that no bank has been ordered to strengthen its capital position following the test.
"The 2017 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs," the Bank of England said in a statement.
"The economic scenario in the test is more severe than the global financial crisis. Significant improvements in asset quality since the crisis mean that the loss rate on banks' loans in the stress test is the same as in the financial crisis," it said.
The 2017 stress tests were applied to the UK's seven largest banks and building societies: Barclays, HSBC, Lloyds, Nationwide, RBS, Santander UK and Standard Chartered. It measured how resilient they would be to a stress scenario which included a 4.7% fall in UK GDP, a 33% fall in house prices, interest rates increased to 4% and a 27% fall in the value of the pound.
Banks started the test with a combined Tier 1 leverage ratio of 5.4%, Tier 1 risk-weighted capital of 16.4% and common equity Tier 1 (CET1) ratio of 13.4%, three times stronger than that of a decade ago, according to the Bank's report. The stress scenario, once applied, took these down to 4.3%, 10.3% and 8.3% respectively.
"They would therefore be able to continue to supply the credit the real economy could demand even in a very severe stress," the Bank of England said.
Two banks would fall below the figures required of them based on their financial position at the end of 2016, the Bank said. However, they had "continued to build their capital strength during 2017", meaning there was no need for them to build up additional capital now in order to meet the requirements of the test.
The Bank's Financial Policy Committee (FPC) published its twice-yearly financial stability report alongside the stress test results. In its report, the FPC said that it expected the UK banking system to cope "in the unlikely event of a disorderly Brexit", but confirmed that it would raise banks' emergency 'countercyclical' capital buffer from 0.5% to 1%. This will not require banks to set aside additional capital, but rather to incorporate some of the capital that they currently hold into their regulatory capital buffers.
Bank of England governor Mark Carney said that the FPC would revisit the size of this capital buffer in the first half of 2018, "in light of the evolution of the overall risk environment".
Banks were also subjected to an additional 'exploratory' stress test for the first time this year, which will be repeated every other year. This test, which is designed to assess banks' responses to longer-term economic stresses, measured how banks would respond to "an extended low growth, low interest rate environment with increasing competitive pressures in retail banking", enabled in part by the growth of financial technology (fintech) products.
While the banks reported that they could adapt to these competitive pressures, the Bank of England warned that fintech could "cause greater and faster disruption to banks' business models than banks project".
"The changing role of UK banks in the face of open banking and competition from fintech will need to be addressed by the Bank of England at some point," said banking expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com.
"The difficulty is the level of continual change impacting the banking sector currently. What is being tested and, indeed, the parties to be tested, appear to be in a state of flux, making it difficult to attribute the correct value to the tests being run. With Brexit on the horizon, the position does not appear likely to be stabilising in the near future," he said.