The UK regulator takes a different approach to the US and follows the example set by the EU
LONDON - Details of the stress tests employed by the UK's Financial Services Authority (FSA) have been published by the City watchdog today, although it says the results for individual banks will remain secret.
The FSA statement confirms the UK approach differs from the tests carried out by the US Treasury on the top 19 US banks, the results of which were published earlier this month, revealing that 10 US banks required a combined $74.6 billion recapitalisation.
The regulator says the macro-economic parameters used within its approach fit within the European Union-wide stress-testing exercise on the aggregate banking system being co-ordinated this summer by the Committee of European Banking Supervisors (Cebs).
Like the Cebs exercise, no bank-specific results will be released, allaying government fears of a public call for recapitalisation that could require more state support. It says practices may change, and the tests themselves are an evolving tool.
The FSA acknowledges that the US model already rolled out has stoked "considerable interest" in the use of stress testing by authorities in Europe in response to the global financial crisis - especially in the wake of April's G-20 agreement on the need for collaborative international regulatory medicine.
There are no changes to Tier I minimum capital requirements - still standing at pre-crisis 4% levels for banks and 7% for building societies - and the FSA says it has deferred the issue to wait on EU updates to the Basel II framework, through the Capital Requirements Directive, to be debated in Brussels this summer.
The FSA says it has increased the use of stress tests over the past year and that they will form an integral element of its revised more intrusive "intensive" supervisory approach already outlined by the regulator's chief executive Hector Sants earlier this year.
It also says it has used stress tests for its state support policy decisions such as access to the Credit Guarantee Scheme and the Asset Protection Scheme in collaboration with its tripartite partners, the UK Treasury and Bank of England.
The FSA says its stress tests "are not forecasts of what is likely to happen but deliberately designed to be severe". However, the regulator adds that in evaluating a firm's ability to meet its stress scenario requirements, it might consider compelling management to take actions including evolving the balance sheet size, raising capital and asset sales.
More on Regulation
ABA calls for better ways to compare bank capital between countries
US regulator will pursue a quicker route to exempt foreign CCPs
ECJ decision means new problems for data preservation
Discussion crystallises over regulatory streamlining
Sign up for Risk.net email alerts
Sponsored webinar: IBM
Watch highlights of this year's London conference
Operational risk and the challenges of defining and dealing with conduct risk
Watch discussions and speakers from our North America conference
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.