UK banks stress-testing warning

LONDON – The Bank of England gave the UK banking industry a stark warning in mid-July to improve stress-testing systems to avoid being dangerously exposed if there is a "severe shock" to the financial system.

The UK's central bank made the comments in its twice-yearly Financial Stability Report, which found that risk models used by banks are better at capturing certain types of risk, such as credit risk, rather than liquidity risk.

Banks' risk management systems are also failing to keep up with the pace of evolution in financial markets and the growing popularity of financial instruments such as collateralised debt obligations (CDOs) and complex structured products, which may prove to be illiquid in

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