The Bank of England said today its annual stress test of eight major lenders showed that each could cope with rising interest rates in a stressed environment.
It also said that none of the eight banks would need to submit a revised capital plan.
The test checked if banks were holding enough capital to cope with theoretical shocks under a scenario which the Bank of Englaned said was more severe than the global financial crisis of 2008 when British taxpayers had to bail out several lenders.
The test also measured how well the lenders would cope with a global rise in interest rates. The eight banks account for 75% of lending in Britain.
"The results of the 2022/23 annual cyclical scenario stress test show that the major UK banks are resilient to a severe stress scenario that incorporates persistently higher advanced economy inflation, increasing global interest rates, deep simultaneous recessions with materially higher unemployment in the UK and global economies, and sharp falls in asset prices," the Bank of England said.
There was no common pass mark but each bank had to scale a bespoke hurdle, with Barclays, Lloyds, HSBC, NatWest, Santander UK, Standard Chartered, Nationwide Building Society and Virgin Money all showing no capital inadequacies, the Bank of England said.
The Bank of England also said it has decided to maintain its counter-cyclical capital buffer (CCyB) for banks unchanged.
"In the current context of its overall capital strategy, the FPC judges that the neutral rate for the UK CCyB is around 2%," the bank said.
Virgin Money said that given its successful completion of the stress test, it anticipated resuming its share buyback programme during this year.
NatWest, Britain's biggest lender to small businesses, said the test highlighted the group's "all weather" balance sheet. NatWest owned Ulster Bank here, which has now withdrawn from the Irish market.
Lloyds, Nationwide and Standard Chartered also noted their successful performance in the test.
UK economy coping with higher rates - Bank of England
The Bank of England also said that the UK economy is so far proving resilient to a surge in interest rates over the past year and a half, but it will take time for the full impact to feed through.
The bank last month raised rates to 5% that had stood at 0.1% at the end of 2021, raising concerns about a hit to households, businesses and the broader financial sector that could push the economy into a recession.
But in a half-yearly assessment of the health of the financial system, the Bank of England said there was no reason for alarm.
"The UK economy has so far been resilient to interest rate risk, though it will take time for the full impact of higher interest rates to come through," it said.
The proportion of highly indebted households was rising, but even taking into account the higher cost of living - with inflation at 8.9% in May - it was likely to remain below the peak seen in 2007.
Average interest rates for new two-year fixed-rate mortgages - the most common form of housing finance - rose above their peak this week after last September's mini-budget to a 15-year high of 6.66%, according to data provider Moneyfacts.
Britain's finance industry estimates 800,000 households will need to refinance onto more expensive mortgages in the second half of 2023, and a further 1.6 million in 2024.
The Bank of England said the typical mortgage holder refinancing later this year would pay an extra £220 a month and that, by the end of 2026, nearly 1 million households would be paying at least £500 a month more.
It said British banks were less exposed than households to the adverse effects of higher interest rates, especially compared with financial institutions in other countries, while the corporate sector remained "broadly resilient".
"Nevertheless, higher financing costs are likely to put pressure on some smaller or highly leveraged firms," it added.
The Bank of England saw particular risks in global commercial real estate and from corporate borrowing in the private credit and leveraged lending markets.
