Banks Summoned Over 'Doomsday' Stress Tests
Britain's biggest lenders have been summoned to the Bank of England (BoE) as the industry prepares to undergo a searching test of its ability to withstand a sterling and housing market crash.
Sky News has learnt that the eight groups which are being subjected to the new series of annual stress tests have been called in by BoE officials to discuss the exercise in recent days.
The individual meetings with the seven banks and Nationwide, the UK's largest building society, follow the submission of each institution's data under the terms set out by the Prudential Regulation Authority (PRA) in April.
The lenders will have to demonstrate their capacity to cope with a series of economic shocks, including a sharp depreciation in sterling and a build-up of inflationary pressures in the UK; a tightening of monetary policy and a rise in long-term interest rates; a decline in GDP of about 3.5% from its 2013 Q4 levels, and a rise in unemployment to around 12%; and a slump in house prices and commercial real estate prices fall of approximately 35% and 30% respectively.
The BoE has requested that each of the major lenders presents its data to a group of PRA and Bank officials.
It will then scrutinise the submitted information for up to two months, during which it may challenge the banks or request re-submissions, according to insiders.
The stringency of the stress tests has raised concerns among senior bankers that some lenders could be forced to raise billions of pounds of new capital.
However, City analysts have played down that prospect, arguing that the five big listed banks would have to incur total losses of £112bn before slipping below the BoE's minimum capital threshold.
"Much has been achieved in recent years to put the UK banking system on a sounder footing, so that it can support the UK recovery," Mark Carney, the Bank of England Governor, said in April.
"The challenge now is to secure a strong, sustainable and balanced economic expansion. The Bank's annual stress test will help ensure our banks support that expansion by remaining resilient."
In addition to Nationwide, the institutions participating in the stress tests are Barclays, Co-operative Bank, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander UK and Standard Chartered.
The PRA declined to comment.