8 banks to be stress tested in regard to a house price crash

Graham_Devon

Seems Carney is going to go further than EU stress tests and include a stress test designed to look at how banks would cope with a UK house price crash.

Question needs to therefore be raised...why do this now?

He must feel that there is enough of a risk to implement such tests?

The Bank of England is to test whether banks and building societies would go bust if house prices crash.

A ‘stress test’ will examine whether banks will need bailing out if prices plunge. It is being drawn up by the Bank’s Financial Policy Committee, whose members include Governor Mark Carney.

A Nationwide Building Society survey just out showed house prices had risen by 8.8 per cent in January over the same month last year.

The high-profile examination by the Bank could highlight the gulf between Carney and Chancellor George Osborne over the housing market. Bank officials are keen to use whatever tools they can to prevent a price bubble, with Carney drawing attention last year to the relatively small number of new homes built.

Osborne’s Help to Buy scheme offering Government-backed mortgages has been blamed by some for helping to inflate the market.

The Bank will conduct stress tests on eight banks and building societies. It has to do tests on the ‘Big Four’ banks – HSBC, Lloyds Banking Group, RBS and Barclays – for the European Banking Authority, which is testing on all EU banks.

As part of the analysis, it plans to adjust the European test to include a UK housing crash, and will also test the next four largest UK financial institutions – Standard Chartered, Nationwide, Santander and The Co-operative Bank. The results could be published by November, but the FPC has not yet decided if it will make them public.

http://www.thisismoney.co.uk/money/markets/article-2554735/Fears-house-price-bubble-stresses-Bank-boss-Mark-Carney.html

purch

Graham_Devon wrote: »

...why do this now?

Cos he is the new Governor of the Bank of England Bank and he thinks it is a good idea.

Don't think too deeply about this. It is a no brainer in many ways considering the large proportion of the balance sheets or certain Banks are tied up with these assets.

The Q is more, why was it not done before ?

michaels

Graham_Devon wrote: »

He must feel that there is enough of a risk to implement such tests?

That would be a first, in the past bank stress tests have been based on what the banks were likely to pass rather than the risks they were exposed to.....

AndyGuil

They will all pass. The amount of money being loaned on houses is nothing like it used to be pre-recession.

wotsthat

The mistake he's making is thinking that once the stress test shows there isn't a house price bubble and the banks can cope with price falls the naysayers will stop naysaying.

Maybe naysaying isn't a national pastime in Canada so he has little experience of it.

Graham_Devon

wotsthat wrote: »

The mistake he's making is thinking that once the stress test shows there isn't a house price bubble and the banks can cope with price falls the naysayers will stop naysaying.

Maybe naysaying isn't a national pastime in Canada so he has little experience of it.

LOL. Not sure he's doing this just to "quieten down the naysayers". I doubt he even cares what "naysayers" might be saying.

antrobus

Eurozone banks face £42bn 'capital black hole’
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10626225/Eurozone-banks-face-42bn-capital-black-hole.html

But don't worry, we're fine apparently - "The UK is now basically clean". The problem is Germany, with one of "the worst banking systems in the world".

Good to know.

wotsthat

Graham_Devon wrote: »

LOL. Not sure he's doing this just to "quieten down the naysayers". I doubt he even cares what "naysayers" might be saying.

He cares if he thinks it affects behaviour. He wants people to believe...

a) interest rates are going nowhere soon
b) there is no house price bubble and he'd be on top of it if there was
c) we have a strong banking sector

The reality is secondary (whatever it may be) because if people behave as if they don't believe it may harm the strength of the recovery.

So you're going to see new forward guidance reinforcing a) and stress testing to 'prove' b & c are true.

Bantex_2

wotsthat wrote: »

He cares if he thinks it affects behaviour. He wants people to believe...

a) interest rates are going nowhere soon
b) there is no house price bubble and he'd be on top of it if there was
c) we have a strong banking sector

The reality is secondary (whatever it may be) because if people behave as if they don't believe it may harm the strength of the recovery.

So you're going to see new forward guidance reinforcing a) and stress testing to 'prove' b & c are true.

I remember Gordon Brown in 2007 banging on about there not being any problem with the banking sector and we were just "talking ourselves" into a recession.

wotsthat

Bantex wrote: »

I remember Gordon Brown in 2007 banging on about there not being any problem with the banking sector and we were just "talking ourselves" into a recession.

The stress tests would provide some evidence. It'll save us overly relying on a memory of something from nearly a decade ago where someone said bad things wouldn't happen and they did.

grizzly1911

If the banks had effective risk managers, who were taken seriously, by those in control, then perhaps he wouldn't need to be concerned.

Risk Functions having become poor relations to bonus driven Sales Directors and boards trying to meet the needs of impatient shareholders.