The Bank of England is to test Britain’s major banks on their ability to weather a housing market crash that could wipe more than a third off home prices, reports The Telegraph.
Lenders are expected to be told they must be able to show they can survive about a 35pc fall in property values to pass this year’s round of stress tests conducted by the Prudential Regulation Authority (PRA), the Bank of England-run body charged with supervising the banking industry.
The PRA will give full details of the stress tests on Tuesday, which are part of an annual regime designed to ensure that any problems at individual banks are found well before they can become a source of serious problems.
“The Government created the new regulatory system in order to build a resilient economy and avoid repeating the mistakes of the past. Building strong and resilient banks is a core part of our long-term economic plan,” said a spokesman for the Treasury.
The stress tests are tailored to each bank so that they pick out the most likely risks facing different institutions.
For instance, Standard Chartered and HSBC were last year largely tested on their ability to cope with a severe downturn in Asian markets, particularly those of Hong Kong and China.
The PRA is likely to maintain this focus amid increased fears over the outlook for Asia and the prospect of a serious financial crisis in China.
Stress testing has become an integral part of financial supervision in the six years since the financial crisis, with regulators accused in the run-up to the crash of failing to properly assess the risks facing banks.