Economy

United Kingdom banking sector stress test 'is not fit for purpose'

United Kingdom banking sector stress test 'is not fit for purpose'”

A damning report has claimed the stress tests used to judge the safety of the United Kingdom banking system are "worse than useless".

Major UK banks are still too highly leveraged and the current stress tests give a false comfort by overstating their resilience, the Adam Smith Institute says. In this sense, the stress tests are like a ship's radar system that can not detect an iceberg in plain view.

The UK'S finance sector is an "accident waiting to happen", according to a report branding the Bank of England's stress tests as "worse than useless".

He suggested that the stress test system is "dangerous" and should be scrapped.

However, it added the Bank's reassurances lack credibility and are contradicted by evidence.

The report, from one of the UK's leading exponents of classica liberalism, focused on the Bank of England's 2016 test of the United Kingdom banking system's resilience.

But in a letter to Sir John in December, Mr Carney, who is also chairman of financial health watchdog the Financial Stability Board, said there was "little evidence to suggest that investors should be concerned about poor asset quality for United Kingdom banks".

'The UK banking system is still highly vulnerable and another major shock could bring it down again'.

It said major United Kingdom banks remain too highly leveraged and would all fail a stress test if it was based on market value of bank capital rather than book value.

"We use a baseline forecast of a bank's profitability to construct the projection of its capital position".

"We find that our baseline projection for the four largest United Kingdom banks equates to a price to book ratio of between 0.7 and 0.8, consistent with the actual price to book ratio at the time the stress tests were published".

It added: "The Bank's stress model also produced implausibly low projected losses and so failed a basic reality check".

Professor Kevin Dowd, senior fellow of the ASI and author of the report, said: "The stress tests are about as useful as a cancer test that can not detect cancer". In the paper he added that it is compromised by conflicting objectives and by the Bank's poor forecasting record.

"Even if the Bank were right about risks, this would make crises less frequent, but when they did arrive, much, much worse".



Like this

Latest


13 September 2017
Facebook to clamp down on hate speech and clickbaits
Google, in response, promised to increase its use of technology to help identify extremist and terrorism-related videos. For Audience Network, we expect the full list of publishers on the complete set of formats to be available by October.

13 September 2017
Gov't to grant permits for Eldorado Gold's Olympias project this week
Seventy-eight percent of Eldorado's capital spending is dedicated to these two mines and they represent some of the company's lowest-cost operations.

13 September 2017
Israeli MP quits under fire after attending gay relative's wedding
They called on the leaders of Shas "to not endorse this awful desecration of God's blessed name and to remove and fire [Mr Guetta] immediately".

13 September 2017
Floyd Mayweather Has Seven Girlfriends Because For Him One Isn't Enough
Mayweather has been linked with a string of girls, including British retail assistant Rmarni Ellis . And when asked how many girlfriends he has, Mayweather provided a bold response.

13 September 2017
Atossa Genetics Inc. (ATOS), Oracle Corporation (ORCL) Stock Eyes Ahead of Earnings
In general, more thrust is placed on most recent actions by assigning higher weights to it than those assigned to past movements. Sidoti & Co. "Downgrades" Atossa Genetics Inc (NASDAQ:ATOS) in a research note issued to investors on 10/07/13 to Neutral.

13 September 2017
Facebook's Standalone Video Chat App Enters Testing
A spokesperson for Facebook confirmed to the scribe that "We're running a very small test in Denmark of an app we call Bonfire". Having Bonfire work alongside Messenger should give it some exposure and traction when it launches more widely.

13 September 2017
North korea: The nuclear test was 16 times more powerful than Hiroshima
Information on variations in the earth's crust is transferred to the analysts, in agreement with the Organization of the Treaty on comprehensive ban of nuclear tests.

13 September 2017
Android Oreo bug disables mobile data on Nexus and Pixel devices
Moreover, the Pixel 2 duo are expected to carry some new features that are not available on the existing version of Android 8 .0. Go figure?! Even so, we've had word from Verizon users who have received this update and with it the September security patch.

13 September 2017
1 dead, 3 in hospital after leaving generator inside home
When emergency officials arrived, they found six people suffering from carbon monoxide poisoning symptoms. The deputy was overcome by fumes while approaching the home and called for fire rescue.

13 September 2017
Woman drives 20 miles with coyote stuck in vehicle
Ms Knox had driven all the way "at highway speeds" from Airdrie to Calgary, about 35km (21 miles). She notified provincial wildlife officials who managed to rescue the coyote.



Recommended