Last year, the Bank of England subjected UK banks to a sharp slowdown in China, a fall in oil prices and intense market volatility, coupled with stressed estimates of redress costs for past misconduct. Across the system, banks in the test incurred losses of £ That’s over twice the losses of the system in the financial crisis. Back then, losses on that scale would have wiped out almost two thirds of the capital of the entire British banking system. With so much more capital today, the stress test showed those losses could be absorbed, even while the system continued to grow credit to the real economy. Far from sideswiping the real economy under stress, the test showed the banking system could continue to support it. 1 And yet, there is still, eight long years after the crisis, a lively debate in newspapers, blogs and academia, about whether the capital strength of the banking system should be built up further. 1  Available at http://www.bankofengland.co.uk/financialstability/Documents/fpc/results011215.pdf. BIS central bankers’ speeches  1  About whether authorities should abandon the conclusions of Basel III and of the UK’s post-crisis Independent Commission on Banking and compel banks to go further. A debate like that is all to the good; these are important questions for society. But it has to be balanced against the merits of clarity. Clarity you need to run your businesses effectively. Clarity investors need to allocate and price capital efficiently. Clarity the public, and Parliaments, need to hold policymakers and banks to account.
Compared with the March projections, the average inflation rate for 2023 is revised downwards by 0.5 pp. This is the result of a sharper-than-expected slowdown in energy prices and, to a lesser extent, in food prices. As with the euro area as a whole, there is still a great deal of uncertainty and the risks to the growth projections remain predominantly tilted to the downside. With regard to inflation, the Employment and Collective Bargaining Agreement recently reached by Spain’s main social partners includes recommendations for wage rises for the period 2023-2025 that somewhat mitigate the probability of second-round effects emerging via wages in Spain. Indeed, according to the data on the collective bargaining agreements registered up to May, the wage moderation continues.1 In terms of profit margins, the results of the Banco de España’s Central Balance Sheet Data Office Quarterly Survey (CBQ) show an uptick in 2023 Q1, although the margin on sales remains below its 2019 level. In any case, there is a high degree of heterogeneity across sectors.2 Recent developments in the banking sector With the context given so far, the most recent developments in the banking sector can be characterised by the following stylised facts. Financing First, financing in the sector is being influenced by the tightening of monetary policy. This has led to a reduction in Eurosystem financing,3 which has been offset above all by  1  The average wage rise agreed for 2023 stands at 3.3%, slightly above the 2.9% agreed for last year.