The Bank of England said on Wednesday it would conduct a stress test for major UK banks to find out to what extent their capital reserves allow for support of the national economy during a crisis while continuing to lend
MOSCOW (Pakistan Point News / Sputnik - 20th January, 2021) The Bank of England said on Wednesday it would conduct a stress test for major UK banks to find out to what extent their capital reserves allow for support of the national economy during a crisis while continuing to lend.
Stress tests were suspended for 2020 due to COVID-19.
"The 2021 solvency stress test will assess the major UK banks and building societies against a UK and global scenario that reflects a severe path for the current macroeconomic outlook," the regulator said in a press release.
Banks will be asked to assess their balance sheets to a scenario in which the United Kingdom's GDP loses 800 billion pounds ($1 trillion) over the period 2020-22, which is 37 percent of its 2019 GDP, while unemployment reaches almost 12 percent and prices on residential and commercial property drop by around 33 percent. The scenario also entails a cumulative fall in world GDP from 2020-2022 by 31 percent of 2019 GDP, relative to a pre-pandemic baseline.
"There will be no mechanical link from the results to regulatory response. But the outcome of the test will be used to update the Financial Policy Committee's judgments about the most appropriate ways in which the banking system can continue to support the economy through the stress," the press release read.
The test will ultimately show how severe the current crisis would need to get to jeopardize the UK banks' resilience and ability to lend.
The testing will contain several stages. The banks are expected to submit their crisis management forecasts earlier than normal in April rather than June and the findings will be released in quarter four of the year.
