Banks should improve stress testing, says UK FSA

Financial institutions should use more extreme scenarios in stress testing, the UK Financial Services Authority (FSA) has warned.

In an open letter to chief executives published on its website in mid-October, the FSA wrote: "We were struck by how mild the firm-wide stress events were at some of the firms we visited ... few firms were seeking scenarios ... that might require a dividend cut, generate an annual loss or result in shortfalls against capital requirements." Stress tests should represent

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