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Should I invest in UK bank shares?

27/04/2023

The beginning of 2023 hasn’t been a great one for the global banking sector. We’ve already seen the collapse of US-based Silicon Valley Bank, Silvergate Bank and Signature Bank. Shares in Deutsche Bank have been in turmoil, while Swiss bank Credit Suisse had to be rescued.

But does this automatically spell bad news for UK banks, or are they still worth investing in? 

 

Bank of England remains “vigilant”

Describing the Silicon Valley Bank failure as the fastest lender demise since Barings, the Bank of England has said that it is on high alert since the collapse of the three US businesses. 

Governor of the Bank of England, Andrew Bailey, claims that there is no fresh crisis on the horizon for the UK banking sector. He has, however, provided reassurance that both they and market regulators are aware that the market is being tested for signs of weakness, and that they remain vigilant to any potential problems. 

UK bank shares fell on March 24th after the turmoil the global market experienced. However, despite some investors pulling out of the sector, others are more bullish about UK banking prospects. 

 

Another 2008 is unlikely

There is much media speculation that the troubles currently faced by the banking sector could spell the start of another global financial crisis akin to that of 2007-2009. While the Bank of England has stated that there is still some danger of it happening again, it highlights that UK banks are in a much stronger position than they were back then. 

The core capital ratios of the largest lenders, they say, are three times higher than pre-2008. Furthermore, the results of the stress tests that the Bank of England conducts each year suggest that the UK’s financial institutions could survive a crisis three times larger than the crisis experienced 15 years ago. 

UK banks appear to have learned from the last major financial crisis, carrying less risk and holding more liquid capital than before. What’s more, with bank stocks tending to have decent dividend yields, some investors still believe in their future performance. 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

 

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