Eight UK banks to undergo "house price collapse" stress test

System

Banking is inherently risky because by their nature they borrow short and lend long. Any bank would fail a stress test at some level, unless they did nothing with depositors' money and just stored their gold in the vault in case they wanted to collect it.

So the only argument is what level of stress is reasonable and practicable to protect against?
They have presumably postulated a 35% price fall because that is the level they could pass. Put the level at 40% and they would all fail. They set the pass mark so that everybody gets their certificates, and no one fails.

CLAPTON

BillJones wrote: »

In the same way that a stopped clock is right twice day, yes.

I wonders how many people are right all the time: whoever they are they don't post on these boards.

purch

CLAPTON wrote: »

presumably the idiots were correct on one occasion then?

If you are one of the idiots who thinks that they are wrong on both counts then yes you were. :T

If you are not an idiot and think that they were wrong to allow the Banks to take unnecessary risks, but applaud them for now undertaking stringent stress tests to ensure that it can't happen again, then you are right on both occasions.

I assume you are in the former camp.

wotsthat

Graham_Devon wrote: »

Seems a pretty high bar to pass?

When they all pass with only minor actions you'll have to remember just how stringent you thought the criteria were.

purch

wotsthat wrote: »

you'll have to remember just how stringent you thought the criteria were.

If we all have to remember what we said last week, then this board would be empty :eek:

Graham_Devon

purch wrote: »

If you are one of the idiots who thinks that they are wrong on both counts then yes you were. :T

Who are you referring to here? No one has really criticised the levels they are using to stress test.

chucky

Interesting that if they they think that 35% as a worst case scenario, it shows that those idiots who expected 50% price falls and those that expected 50% to 65% price falls didn't have a clue.

purch

Graham_Devon wrote: »

Who are you referring to here?.

Whoever wants to try the cap out for size.

Don't get all tetchy, and think everyone is having a pop at you Graham.

My point is that anyone who is being critical of the Government and Bank for doing both things is an idiot, as they can't be wrong on both counts.

I am sure you are not critical of them for implementing these stress tests, so quite patently, on this point, you are not being an idiot.

CLAPTON

purch wrote: »

If you are one of the idiots who thinks that they are wrong on both counts then yes you were. :T

If you are not an idiot and think that they were wrong to allow the Banks to take unnecessary risks, but applaud them for now undertaking stringent stress tests to ensure that it can't happen again, then you are right on both occasions.

I assume you are in the former camp.

I see little logic in the stress tests.
What makes it appropriate now and not say 5 years ago?

The BoE has been playing a game since the financial crisis maybe the overall effect to reduce risk maybe it isn't.

Maybe we should have less regulation and simply allow (in future) banks to fail in various ways.

So yes, by your socialist interventionist logic, I am an idiot that thinks the all this contradictory tinkering by the BoE is pretty pointless and ineffective.

In the same way I think the new MMR rules for mortgage are stupid too.

purch

CLAPTON wrote: »

What makes it appropriate now and not say 5 years ago?

It was appropriate 5 years ago, and 10 years ago...and not doing do so was a huge failure for the Banking industry, the accountancy firms who audit them and of course the regulators.

Stress testing in itself will not solve all issues, and the stable door is being bolted rather late, but not to welcome the idea of stress tests however potentially flaws they may turn out to be would be rather silly.