UK banks' credit losses may top £200bn, but manageable, says Ward

Simon Ward, economist at New Star: "The Bank of England has estimated that major high-street banks would sustain aggregate credit losses over five years of £115-130 billion in a "severe but plausible macroeconomic risk scenario.”

An examination of banks' credit impairment charges in the aftermath of the recessions of the early 1980s and early 1990s suggests a larger five-year loss, of £190-240 billion. On reasonable assumptions, however, up to £400 billion of capital reserves and future profits could be available to set against this damage. Providing the authorities afford banks the flexibility to absorb losses over time, as in previous cycles, additional government financial support may be unnecessary."