Bank of England to stress test bank resilience
The Bank of England is to stress test banks and building societies to ensure they have enough cash to withstand major financial slumps.
The Bank of England has revealed that it is to instruct eight of the biggest banks and building societies in the UK to develop defence mechanisms that allow them to withstand financial challenges.
Specifically, the Bank of England wants these institutions to have enough reserve capital to endure a 35 per cent dip in house prices and sudden increases in interest rates (of up to four per cent).
These stress tests, as they are known, would be carried out by the Bank's Prudential Regulation Authority, which experts say will ensure that the UK's economy does not implode as catastrophically as it has done in previous financial crises over the years.
"If a firm's capital ratio is projected to fall below the 4.5 per cent core equity Tier 1 ratio in the stress, there is a strong presumption that the Prudential Regulation Authority will require the firm to take action to strengthen its capital position," the Bank said in a statement.
News of this comes on the back of the European Central Bank's announcement that it is delivering a comprehensive review of assets held in banks within the eurozone.
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