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The UK’s leading financial regulator has stated that it is keeping an eye on how Donald Trump’s extensive tariffs may affect banks, as an anticipated economic downturn is likely to result in increased reserves for loan defaults.
Sam Woods, CEO of the BoE’s Prudential Regulation Authority, mentioned that the watchdog has enhanced its surveillance of financial institutions during the market fluctuations caused by the US president’s tariffs, although it has not yet escalated to requiring daily liquidity updates from banks.
“We are monitoring the [tariff] effects very closely,” Woods shared with the House of Commons Treasury select committee on Tuesday. “The next thing we are looking for is the overall economic impact of this situation.”
“It will be intriguing to see if banks decide to adjust their provisions for a changing economic landscape, as they are already making forward-looking provisions,” he noted. Woods also serves as a deputy governor at the BoE. “That’s where our attention is focused for now.”
On Tuesday, HSBC reported a $150 million impact due to increasing economic uncertainty, which is part of a total $876 million provision for bad loans recorded in the first quarter, slightly exceeding analysts’ expectations.
The IMF recently revised its UK growth projections down from 1.6% to 1.1% for this year, citing extensive economic disruptions from a US-led rise in trade barriers globally.
Share prices of several British banks fell by as much as 20% following Trump’s tariff announcements, with Woods remarking that it is “uncommon for us to see such a diminished value of our banks.”
Nonetheless, he pointed out that those share prices have mostly rebounded since Trump postponed the tariffs, and the PRA has not noticed significant signs of the sell-off affecting investor or consumer confidence in banks.
“Our primary concern is the potential for contagion into funding,” he stated. “That’s what we prioritize, and we haven’t observed any indications of that.”
Woods indicated that Trump’s tariff announcements had “significantly impacted the perception of the US among regulators and investors,” reflecting on his recent visits to Washington for the IMF and World Bank Spring meetings.
He noted a “very troubling” decline in both the US dollar and US government bonds following Trump’s announcements, along with a drop in stock prices.
“Typically, during such risk-off conditions, we expect the opposite—an influx into these assets,” Woods explained. “It raises the question: what if there’s a significant reduction in appetite for dollar-based assets or US securities?”
The PRA head expressed concern about the US potentially abandoning the previously agreed capital regulations with global regulators during a speech by US Treasury Secretary Scott Bessent on April 9.
Bessent had stated: “We should not delegate decision-making for the United States to international organizations.” He mentioned that while the Basel standards could “inspire,” the US might selectively adopt them.
However, Woods added that he received “strong reassurances” from both public and private sector figures in the US that this should not be the interpretation of that speech.
The UK has deferred the application of the Basel regulations while awaiting clarification on the US stance under Trump.
Meanwhile, the EU has also postponed parts of the Basel regulations related to bank trading activities, with further delays anticipated this year.
Woods mentioned that “one advantage of Brexit” is that the UK can “move significantly quicker than the EU.”
However, he emphasized that the UK is in “constant communication” with the EU regarding the implementation of reforms, and one effect of Trump’s tariffs has been a notable warming of these discussions.
