Banks pass stress test

Britain’s seven biggest lenders have passed the second round of annual stress tests – but how resilient are the tests?

11-12-3-SC-634

Standard Chartered passed, but it's on the naughty step

Britain's seven biggest lenders have passed the second round of annual stress tests to establish their resilience to a sharp economic downturn. This test was based on an emerging-markets crisis, whereby a plunge in Chinese growth to 1.7% rattled the markets, sending oil below $40 a barrel and undermining developing countries and Europe.

Bank of England Governor Mark Carney said the banks were now far more resilient than in 2008-2009, and within sight of what the Bank's Financial Policy Committee (FPC) deems adequate capital buffers for the long term.

What the commentators said

While all seven "technically passed, only five really did, with two somewhat on the naughty step", said James Quinn in The Daily Telegraph. Barclays, HSBC, Lloyds, Nationwide and Santander were fine. RBS and Standard Chartered didn't meet their capital requirements under the stress scenario. But as the test was based on 2014 accounts, and since then both have raised more money in any case, they won't have to submit plans to top up funds.

Sorry, but the "imagined stress" in emerging markets hardly seems that severe, said Patrick Hosking in the same paper. Chinese growth of 1.7%? "Are recessions really so impossible in China?" More disconcerting, though, is the longer-term "climbdown on capital levels". After the crisis, regulators were talking about a buffer worth 18% of risk-weighted assets. Now the Bank says 11% will do.

It's certainly a "mighty leap downwards", agreed The Guardian's Nils Pratley. Perhaps it suggests that "today's central bankers just have complete faith in their ability to spot dangers"? We should certainly beware the Bank's new-found optimism that the sector has moved out of the "post-crisis period", said Osborne. That kind of talk "probably means the next one's a fortnight away".

Recommended

Director dealings w/e 5 August: what company insiders are buying and selling
Stocks and shares

Director dealings w/e 5 August: what company insiders are buying and selling

Directors’ share dealings can often give investors an insight into the sentiment of company insiders. Here are some of the biggest deals by company di…
9 Aug 2022
Britain’s most-bought shares w/e 5 August
Stocks and shares

Britain’s most-bought shares w/e 5 August

A look at Britain’s most-bought shares in the week ending 5 August, providing an insight into how investors are thinking and where opportunities may l…
9 Aug 2022
Where to find inflation-resistant stocks
Investment strategy

Where to find inflation-resistant stocks

Terry Smith’s latest update contains some valuable pointers for investors looking to protect against inflation.
8 Aug 2022
A low-risk way to beat inflation
Share tips

A low-risk way to beat inflation

Demand for care-home places is strong and the sector should be able to raise prices ahead of costs, says Max King.
8 Aug 2022

Most Popular

Are UK house prices finally heading for a crash?
House prices

Are UK house prices finally heading for a crash?

The latest house price figures show a fall of 0.1% in July. With interest rates rising, inflation hitting double figures and a recession on the cards,…
5 Aug 2022
Brace yourself for the return of rationing
Economy

Brace yourself for the return of rationing

Russia is turning off the cheap energy. That is already leading to belt-tightening, says Matthew Lynn. Who will suffer most, and which sectors will th…
5 Aug 2022
Fear of missing out – what should investors do now?
Investment strategy

Fear of missing out – what should investors do now?

Markets have rallied from their mid-June lows. But if you missed out, as most investors did, what should you do now? Max King explains.
8 Aug 2022