FSA sets out its nightmare double-dip slump scenario

Thrugelmir

Really2 wrote: »

But what were the worse case scenarios for then?

Means possibly even tighter capital solvency rules.......

The report from the FSA says: “In 2009, the macroeconomic scenario used as an input for this supervisory stress testing took the economic position of the beginning of 2009 as its starting point, and projected forward for five years until the end of 2013.
“Given the changes in economic performance and prospects since early 2009, it is now appropriate to define a new scenario for 2010 to 2014.
“We will continue to keep the appropriateness of the macroeconomic scenario under review.”
The latest stress test model from the FSA tests for a further decline in gross domestic product of 2.3% from the end of 2009 to the end of 2011, a fall in the UK’s growth of 8.1% peak-to-trough.
It factors in a double-dip in house prices, with house prices falling by 23% from current levels, or a 36% drop from the market’s peak.
The 2009 stress test model tested a 50% peak-to-trough fall in house prices.
The latest scenario also includes a rise in unemployment to a peak of 13.3% in 2012, from a peak of 12.5% unemployment that was tested in last year’s model.

The FSA have published a report.

Since the publication of last year’s Financial Risk Outlook, the immediate financial crisis has subsided, equity and credit market prices have recovered, and most major economies came out of recession in the last quarter of 2009. But this stabilisation and recovery was only possible because of the public policy response to the crisis – bank recapitalisations, public debt guarantees, exceptional central
bank liquidity support, quantitative easing and the reduction of policy interest rates to historically low levels. Moreover, despite these measures, most developed economies including the UK suffered a severe recession in 2009; recovery is only gradual, and vulnerabilities created by the build up of leverage in the pre-crisis years still remain.

http://www.fsa.gov.uk/pubs/plan/financial_risk_outlook_2010.pdf

chucky

Thrugelmir wrote: »

The first changes are only just being implemented from June 2010. With more to follow in the years to come.

Some of the banks may be off life support but are still in intensive care. As will take some years for them to unwind their asset books.

and time after time the regulations are being watered down so as not to cause problems to any growth in the economy.

if anyone believes that any of these regulations are going to adversely affect mortgage lending during the economy is struggling to get back to 'normal' is deluded.

you're hoping instead of being realistic...

Britain's banks have been given a period of grace before strict new rules on liquidity are introduced that will cost more than £2bn and potentially derail economic growth.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7399812/British-banks-given-a-years-grace-on-liquidity.html

Thrugelmir

chucky wrote: »

and time after time the regulations are being watered down so as not to cause problems to any growth in the economy.

if anyone believes that any of these regulations are going to adversely affect mortgage lending during the economy is struggling to get back to 'normal' is deluded.

you're hoping instead of being realistic...


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7399812/British-banks-given-a-years-grace-on-liquidity.html

Anyone who bets against an odds on certainty is deluding themselves. Sometimes the real facts are unpaletable.

You did remarkably well to read and digest the entire FSA report in 10 minutes.

Really2

Thrugelmir wrote: »

Anyone who bets against an odds on certainty is deluding themselves. Sometimes the real facts are unpaletable.

Well these are stress tests not real facts.

But if you mean the "real facts" are banks would have to stop lending to shore up finances? how do you know they cant pass them already?

Also if they could not and it would constrict lending further do you not think they would open up asset buying again to get through the tests?

What would be the point of making a self fulfilling prophecy.

Thrugelmir

Really2 wrote: »

mmmm well these are stress tests not real facts.

But if you mean the "real facts" are banks would have to stop lending to shore up finances? how do you know they cant pass them already?

Also if they could not and it would constrict lending further do you not think they would open up asset buying again to get through the tests?

What would be the point of making a self fulfilling prophecy.

I am refering to the contraction of available credit caused by the fact that banks in the longer term will be required to hold more capital on their balance sheets.

The level of further capital required to be held is debatable. I agree.

The banks don't have to stop lending. They just won't be able to leverage up their lending on their capital bases as high.

how do you know they cant pass them already?

With both QE and the Special Liquidity scheme in place currently. Unlikely the "weak" banks are in a position to be self supporting.

HBOS must be a total basket case .........

chucky

Thrugelmir wrote: »

Anyone who bets against an odds on certainty is deluding themselves. Sometimes the real facts are unpaletable.

You did remarkably well to read and digest the entire FSA report in 10 minutes.

good deflection of my point but you never answered the point just made another statement...

anyway... do you know the "facts" of what the stress tests are?

a stress test is a set of tests to break the system - these are more performance tests than stress tests. i'll leave you and your palate to deal with the facts...

i also leave you to it to reply with another random statement but avoid the fact that these regulations will be watered down once they are implemented

Thrugelmir

chucky wrote: »

good deflection of my point but you never answered the point just made another statement...

but anyway do you know the "facts" of what the stress tests are?

a stress test is a set of tests to break the system - these are more preformance tests than stress tests.

i leave you to it to reply with another random statement but avoid the fact that these regulations will be watered down once they are implemented

Fair enough. I just get bored with the constant references to the residential housing market.

and time after time the regulations are being watered down so as not to cause problems to any growth in the economy.

if anyone believes that any of these regulations are going to adversely affect mortgage lending during the economy is struggling to get back to 'normal' is deluded.

Currently the first stage of the new capital regulations has been deferred. As the banks aren't in a position to meet the requirement. Which in itself is concerning. as it shows the weakness of both RBS and HBOS in particular. So there's been no watering down as such.

What is the connection between mortgage lending and the economy? Debt repayment is of no benefit to the economy. In fact it results in less money being spent on goods, services and taxes. Which equals less activity.

StevieJ

Thrugelmir wrote: »

We haven't been creating real wealth, or investing our income to generate income in the future. We've been partying. The booze tap has been switched off. All we are left with is the hangover.

Thrug I suggest you cut it out then and behave more responsibly

Thrugelmir

StevieJ wrote: »

Thrug I suggest you cut it out then and behave more responsibly

I have been.....:o

I now reside in a monastry for 6 months of the year. Cheap living. [STRIKE]:beer:[/STRIKE]

tartanterra

Let's get this into perspective!

A report by the FSA? Whilst I'm very sure that their reports are fine and dandy to read, I would take anything in it with a pinch of salt.
After all, they spectacularly failed to warn us of the forthcoming credit crunch, defend their own bonuses, try and hide the identity of wayward companies, struggle a bit with the concept of "Financial Services" and don't really grasp the "Authority" angle of the whole thing.

At least they can produce reports though!:D