Bank of England Restricts ‘Stress Tests’ to Largest UK Retail Banks

Britain’s smaller lenders and British units of foreign investment banks will escape the Bank of England’s annual ‘stress tests’ of their resilience to financial shocks, the central bank said on Wednesday.

The BoE said it preferred to maintain its focus on major banks which account for 80 percent of lending to Britain’s economy, but left the door open to broaden the scope of its annual probes to include non-bank firms such as asset managers.

“The United Kingdom needs bank that can weather shocks without cutting lending to the real economy,” BoE Governor Mark Carney said.

British taxpayers had to plough billions of pounds to prop up RBS and Lloyds Banking Group after the 2008 financial crisis, and lending to firms and households took years to recover, slowing economic growth.

On Tuesday, legislators challenged Carney over whether the BoE was softening regulation in response to political pressure after finance minister George Osborne reversed the burden of proof for misconduct by senior bank executives.

Carney denied regulation was being watered down, and on Wednesday the BoE said the focus on the largest banks was intended to ensure the BoE’s resources were focused on lenders which had the biggest effect on the economy.

Britain is seeking to boost competition in banking and new entrants to the market will breathe a sigh of relief as they already face a new surcharge on profits.

The BoE did its first sector-wide stress test last year, which looked at how losses a housing market crash would damage banks’ reserves, prompting Royal Bank of Scotland to raise extra capital. The results of this year’s test — which will focus on emerging market risks — is due on Dec. 1.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.