Banks pass stress test

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

Running a bank used to be the “the least stressful job in the world”, said Alistair Osborne in The Times. All you had to do was lend money to dodgy friends, “skim off a nice fee and wait for the taxpayer to bail you out”. Now? Constant tests to see if your bank could actually survive nasty downturns.

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”.