Oct 3, 2016

Bank of England confirms plans for additional stress tests for UK banks

The Bank of England will push ahead with plans for an extra set of stress tests next year in order to assess the ability of the UK's top lenders to weather a financial storm.

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The Bank's Financial Policy Committee (FPC) confirmed today it will put the UK's seven biggest banks and building societies through an additional round of scenarios to check how their balance sheets would perform in exceptional circumstances, meaning financial institutes will face two separate sets of probing from the Old Lady in 2017.

The extra tests, proposed last October, will sit alongside the regular annual stress tests which assess how banks would perform if the financial cycle quickly took a turn for the worse. The new "biennial exploratory scenario" is designed to complement these, and will deal with longer-term structural changes banks might face, such as persistently low deflation or other factors which are not "neatly linked to the financial cycle".

The Bank also confirmed the results of the 2016 stress tests, which will look at how banks would handle cyclical factors including a crash in real estate prices, a sharp recession in the UK, a spike in unemployment to nearly ten per cent, $20 a barrel oil prices, and a worldwide contraction, will be published at the end of November.

The exact details of the new stress test will be announced in March 2017.

CITYA.M.
Jake Cordell