UK banks are well prepared for serious economic shocks and can continue to lend during the pandemic, the Bank of England has said.
Banks have built up strong capital buffers since the financial crisis more than a decade ago, the Bank said in its latest financial stability report.
Most risks to the UK's financial stability posed by a no-deal Brexit have been mitigated, it said.
But it warned that "some disruption to financial services could arise".
The Bank said the major UK banks could absorb credit losses in the order of £200bn, but that would involve "incredibly severe" shocks that were unlikely to occur.
UK banks can weather pandemic, says Bank of England https://t.co/LRUEj2dFaK
— BBC News (UK) (@BBCNews) December 11, 2020
For instance, unemployment would have to rise to 15% and house prices to fall by 30%.
Former Bank of England Monetary Policy Committee member Andrew Sentance told the BBC that the Bank saw the banking system as "very resilient".
"I think that the Bank's assessment makes sense," he said.
However, he warned that outside the financial system, a no-deal Brexit would pose big challenges.
"The real economy is going to struggle if we go into a Brexit no-deal," he added.
"Financial sector preparations for the end of the transition period with the EU are now in their final stages," the Bank's report said.
"Most risks to UK financial stability that could arise from disruption to the provision of cross-border financial services at the end of the transition period have been mitigated."
However, it added: "Financial stability is not the same as market stability or the avoidance of any disruption to users of financial services. Some market volatility and disruption to financial services, particularly to EU-based clients, could arise."
The Bank said financial institutions should continue taking measures to minimise disruption.
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