The Bank of England has asked UK banks, insurers and other financial institutions to draw up comprehensive plans for how they will deal with Britain's exit from the European Union. Two days before Theresa May's government plans to trigger article 50 and begin two years of negotiation over the UK's departure, the Bank said City institutions would have to provide copies of contingency plans to reassure regulators that they are ready for "a range of possible outcomes". The Bank's financial policy committee (FPC) also highlighted rapid growth in consumer credit and increased global risks as the main threats to Britain's banking system. It has set a new longer-term scenario for the bank stress tests, its annual health check of the UK banking system, the outcome of which is expected to be published at the end of November. UK household borrowings are high by past standards and have begun to rise in relation to incomes, the FPC said after its quarterly meeting. Consumer credit has been growing particularly rapidly, by more than 10% year-on-year, initially driven by car finance, it warned. The Prudential Regulatory Authority has launched a review into the credit quality of new lending, and the FPC will review these findings over the coming months. Global economic risks have also increased, primarily due to rising debt levels in China. Risks from Britain's commercial property sector have reduced somewhat, the FPC judged, after a fall in prices. The Bank's stress tests on seven leading lenders will, for the first time, include an exploratory scenario, which will examine banks' resilience over seven years of low growth and look at the viability of their business models. It is an additional stress test to the cyclical scenario – another hypothetical scenario that tests banks' resilience in the event of a severe economic shock, over a five-year period. Last year Royal Bank of Scotland, which is 73% owned by taxpayers, was the biggest failure in the stress tests, while Barclays and Standard Chartered also struggled.
