FSA to introduce tougher stress tests for banks

| March 10, 2010

City watchdog, the Financial Services Authority (FSA), has today announced banks will face stricter stress testing to ensure they can survive a further 4 years of falling economic growth and a 13.3% unemployment rate.

Stress tests were introduced following the financial crisis to ensure that banks had sufficient capital to allow them to continue operating through dire economic conditions.

The new, tougher regime will test if a bank can withstand a peak-to-trough fall in GDP of 8.1%, compared with last year’s measure of 6.9%.

Furthermore, they will be tested to see if they can survive an unemployment rate of 13.3% – nearly double the current rate of 7.8%

However, the new stress test is more positive on residential property prices, anticipating a fall of 23%, against last year’s 50%.

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