The U.K.'s Financial Services Authority has reluctantly released information about the stress tests it has conducted on banks including Royal Bank of Scotland Group plc (NYSE:RBS) and Lloyds Banking Group plc (NYSE:LYG), without disclosing the results themselves.
The FSA and the Treasury last week rejected a request for the methodology and results of the stress tests made under the Freedom of Information Act by news agency Bloomberg. Negative publicity ensued, along with criticism from politicians, including media savvy Liberal Democrat Shadow Chancellor of the Exchequer Vince Cable. On Thursday the FSA revealed that current stress test models assume a peak-to-trough fall in GDP of over 6%, with growth not returning until 2011, unemployment rising to over 12%, house prices falling 50% from peak to trough and commercial property plunging 60%. Some of those scenarios aren't a million miles away from economists' forecasts, and the report did nothing to calm renewed stock-market jitters.
Seeking to justify the inferior level of disclosure in the U.K. to the U.S., where authorities earlier this month released the results of tests on 19 banks, the FSA said the testing wasn't "one off" but is instead "embedded in our regular supervisory processes." Elsewhere in the statement, it said it had "begun the process" of incorporating a revised approach to stress testing in its "intensive supervisory regime," giving the unfortunate impression that the agency was a relative stress-test novice. However, a spokeswoman clarified that the regulator had conducted stress tests on banks for many years. What's changed in recent months is how intensively they're used, she said. - Laura Board
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