In what was a masterstroke of closing the stable doors after the horses have bolted, central banks around the world (notably in Europe and the USA) conducted an audit to see if the banks in their charge were placed to withstand another major financial jolt. It will be recalled that in the aftermath of the Global Financial Crisis a number of banks became insolvent; others that by rights should have failed were deemed “too big to fail” and bailed out using public money. A more prudent regulatory approach would have been to prevent the banks from making risky and highly speculative investments before there ever was a crisis, of course. However, as a result of the stress tests, banks that were adjudged to have failed were obliged to set more liquid assets aside and adjust their activities.

Brexit has been described as a slow-motion car crash in that impartial observers conclude that the economy will suffer predictable and badly if the UK government continues with its current plans. The Bank of England has just concluded its own stress tests on UK banks to ascertain if they can withstand the rigours of a hard Brexit (the only problem is that nobody can say exactly how bad that would be) and concludes them to have passed.

In the worst case scenario, the banks are tested against a two-year rise in interest rates from 0.5 to 4%; a decline in UK house prices of 33% and a surge in unemployment from its current level of 4.3% to 9.5%. In a previous round of testing last year, RBS and Barclays were instructed to strengthen their financial position, but this year all of the banks tested have passed, suggesting that in these extreme (?) circumstances, the banks could continue lending. The bank judged its “worst case scenario” to be more extreme than a “disorderly Brexit” where the UK leaves the EU without any deal.

The exercise discovered the fact that 6 million UK customers currently hold EU insurance policies for which insurers could be unable to collect premiums or pay claims to after Brexit. A similar situation arises for financial institutions themselves which use EU insurers to spread their own risks. This segment is wort a dizzying £26 trillion, according to the BoE analysis. This serves as an illustration of just how interconnected UK and EU businesses have become.