Bank of England expands stress tests
- 陈博渊
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E-mail Xinhua, March 28, 2017
The British central bank the Bank of England (BOE) on Monday revealed details of its 2017 financial system stress testing, which will include for the first time an additional test looking at how the system might cope with a longer term financial crisis lasting seven years.
The new stress scenario, the biennial cyclical scenario (BCS), will examine how the British banking system might evolve if recent headwinds to bank profitability persist or intensify.
The BCS incorporates weak global growth, persistently low interest rates, stagnant world trade and cross-border banking activity.
In addition, it also poses the scenario of a continued high level of bank fines for misconduct. From 2011 to 2015 banks paid 60 billion pounds (75.39 billion U.S. dollars) for misconduct.
This new test is not intended to test bank capital adequacy, the BOE said in a statement, but will focus on how banks would meet regulatory requirements and build sustainable business models.
The bank will also run its annual cyclical scenario test (ACS), which as usual will test the largest seven financial institutions operating in Britain, accounting for 80 percent of the system overseen by the regulatory body the Prudential Regulation Authority (PRA).
The BOE said in a statement that the BCS will "incorporate weak global growth, persistently low interest rates, falling world trade and cross-border banking activity, increased competitive pressure on large UK banks from smaller banks and non-banks and a continuation of costs related to misconduct."
The normal ACS test will have results in November, and will examine how banks will respond to the triple shock of a big recession in Britain, higher interest rates and a 33 percent fall in house prices.
Royal Bank of Scotland failed last year's test, with Barclays and Standard Chartered failing on one part of the test.
The BOE's PRA will also examine the rise of consumer credit, which has grown considerably in the past 18 months especially in the autos sector. The examination will be to see if the increase in credit is a threat to the financial stability of the banking system.
"UK household indebtedness remains high by historical standards and has begun to rise relative to incomes," the BOE said.
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