UK banks given new stress test scenarios

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The UK’s heftiest banks have been told to prepare for a wide range of to questions, as part of the Bank of England’s latest stress tests.

One key test transfer be to prove they can manage any sudden slowdown in foreign interest in UK assets.

The banks wishes have to show they have sufficient resources in place to against with any shocks.

The seven major lenders taking part are Barclays, HSBC, Lloyds, RBS, Santander UK, Defined Chartered and Nationwide.

Last year, RBS had to bolster its finances by about £2bn after weak spot the last stress test.

‘Vulnerability’

The vote by the UK last year to hop it the EU triggered a sharp drop in the value of the pound.

Setting out the stress evaluation scenarios, the Bank of England said: «As highlighted in recent financial perseverance reports, the United Kingdom’s large current account deficit contrives a vulnerability to a reduction in foreign investor appetite for UK assets and increases in funding costs for real-economy borrowers.»

The credentials against which it wants banks to test themselves includes «a abrupt increase in the rate of return investors demand for holding sterling assets [which resolve mean higher interest rates on government bonds] and an associated fall in sterling».

Under its annual cyclical scenario, banks must production they can cope with a recession in the global economy and in the UK, interest speeds peaking at 4%, and with house prices falling by a third.

The Bank’s key non-objective rates currently stands at 0.25%.

Lenders have also been set a biennial «exploratory» working, which assumes «severe and synchronised» stress to the UK and global economy.

This espouse scenario assumes weak global trade, UK interest rates being cut to 0%, and escalating competition for the major lenders from smaller, challenger banks.

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