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Eight UK banks to undergo "house price collapse" stress test
Comments
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The only problem I have with stress tests is that they should be meaningful or they're a waste of taxpayers' and shareholders' money.
That the EU stress tests were done without trying to measure the impact of a sovereign default when Greek Government bonds were yielding 30%+ shows how meaningful they were.
I think stress tests are a very good idea but they should test for a proper worst case scenario. What happens if base rates go back up to 5% (normal levels) 10% (elevated but hardly unknown) or 15% (record highs) for example?
I ran stress tests on our hedge fund's management company and tested it to find the point at which it would fail. I looked at falls in the stock market of 10-60%. To me that was far more meaningful than what the EU tested. IIRC, if investors took every single penny out of the fund and we were still paying full expenses we would have lasted 5-6 years without any economies being taken.
Once you understand what it takes to blow the company up you can look at whether it's worth spending money on preventing it from happening. For us it was ludicrous to mitigate the risk, we never would have gone bust as the scenario to force it to happen would have made us walk away years before that moment ever arrived.0 -
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.
I had to do a stress test on the hedge fund (for MiFID/Basle II) in 2007-8. I think that's when the banks started doing them too.0 -
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.
It is sadly the big government interventionist way: it may do no good but we might as well spend another few million/billion on some pointless exercise which will probably have unintended harmful consequences.
Having a system that didn't allow banks to fail was a huge failure for the UK economy.
Stress testing will do probably do nothing to assist future stability and will probably do much harm to people wanting sensible loans.0 -
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I ran stress tests on our hedge fund's management company and tested it to find the point at which it would fail.
Depressingly I think most people won't delve into this beyond the headlines they read on the papers as they pay for their petrol.
Finding the point of failure has some things going for it but the headlines will read 'banks fail stress test'.0 -
No.
One day the Government and Bank are criticised for allowing Banks to take unnecessary risks
Next day the Government and Bank are criticised for checking that the Banks are not taking unnecessary risks
And it's the same idiots criticising them for both things :eek:
I'm curious why they settled on 35% ?0
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