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Sam Woods, deputy governor of the Bank of England, said on Wednesday that they are at the beginning of a significant downturn in the economy. 

“Banks have enough capital to make government COVID-19 loans, issues are operational bottlenecks,” Woods explained. “The government’s lending schemes cover about 80% of firms by turnover and employment, hard to get total coverage.”

Market reaction

The GBP/USD pair largely ignored these comments and was last seen trading near 1.2500, erasing about 1% on a daily basis.

Additional takeaways

“Biggest risk to banks comes from unknown extent of bank lending needed to bridge coronavirus situation.”

“Not obvious that OBR coronavirus scenario is worse for banks than existing BoE stress tests.”

“UK banks are not capitalised for a multi-year shut down of the economy.”

“Corporate defaults are a worrying prospect for banks and insurers.”

“Largest companies have made very large precautionary drawdowns from revolving credit facilities and put on deposit.”