Jump to content
House Price Crash Forum
Ah-so

Bank Of England Stress Testing Results, 16 December

Recommended Posts

The BOE will release the results of its stress testing today at 7 am. The tests are supposed to be harsher than the EBA tests released last month and include a wider group of firms.

The Bank of England has outlined the so-called “stress scenario” that the banks must be ready for. In the scenario, 10 factors – house prices, unemployment, GDP, commercial property values, interest rates, inflation, bond yields, the sterling exchange rate, wages, and stock markets – are all affected by a crisis over a three-year period.

For example, house prices fall by 35pc and unemployment doubles, while sterling falls by 30pc on a trade-weighted basis. Inflation spikes and interest rates rise above 4pc in response.

http://www.telegraph.co.uk/finance/bank-of-england/11294490/Bank-of-England-stress-tests-What-you-need-to-know.html

Co-op announced a few weeks ago that it expects to fail, but no other bank has said anything. Time for another bail-in?

Share this post


Link to post
Share on other sites

The BOE will release the results of its stress testing today at 7 am. The tests are supposed to be harsher than the EBA tests released last month and include a wider group of firms.

http://www.telegraph.co.uk/finance/bank-of-england/11294490/Bank-of-England-stress-tests-What-you-need-to-know.html

Co-op announced a few weeks ago that it expects to fail, but no other bank has said anything. Time for another bail-in?

Why not feed the ealry 90s into the equation - house prices fall 50%, sterling halves, IR reach 12%.

This is not a stress test. Its wishful thinking.

Share this post


Link to post
Share on other sites

and oil. margin calls on derivatives expected to be blowing this week.

Edited by Bloo Loo

Share this post


Link to post
Share on other sites
Following the stress testing exercise, the PRA Board judged that, as at end-2013, three of the eight participating banks (Co-operative Bank, Lloyds Banking Group and Royal Bank of Scotland) needed to strengthen their capital position further. But, given continuing improvements to banks’ resilience over the course of 2014 and concrete plans to build capital further going forward, only one of these banks (Co-operative Bank) was required to submit a revised capital plan.

http://www.bankofengland.co.uk/publications/Pages/news/2014/169.aspx

So Co-op is completely screwed, unless the Co-op Group and hedge funds that own it want to dig deeper and stump up some more capital.

Share this post


Link to post
Share on other sites

It odd how they can conduct stress tests yet on many assets they hide true market valuation, QE to keep those valuations hidden so presenting a false view of current liquidity, yet expect the self same banks to honestly test themselves by changing the LIAR valuaions to some ficticious value the people that never saw it coming say they might hit.

Co-op fails..probably the only honest bank out there.

Then there are this weeks oil derivatives margin calls...priced in of course...except US banks have needed to het legislation rushed through to put FDIC on the hook for their likely blow up.

Edited by Bloo Loo

Share this post


Link to post
Share on other sites

You would have thought that if Co-op were in trouble, they'd be offering some half-decent savings rate to reflect the risk of lending to them and also to raise some capital. That's what Santander was doing around 2012. In this case, not a sign of anything even approaching a competitive savings rate, even among the ultra low rates out there today.

Share this post


Link to post
Share on other sites

It odd how they can conduct stress tests yet on many assets they hide true market valuation, QE to keep those valuations hidden so presenting a false view of current liquidity, yet expect the self same banks to honestly test themselves by changing the LIAR valuaions to some ficticious value the people that never saw it coming say they might hit.

Co-op fails..probably the only honest bank out there.

Then there are this weeks oil derivatives margin calls...priced in of course...except US banks have needed to het legislation rushed through to put FDIC on the hook for their likely blow up.

Or really, really useless.

Share this post


Link to post
Share on other sites

Or really, really useless.

indeed, an honest banker just could no be successful.

advertising their zero sum games are going to "put your money to work".

Share this post


Link to post
Share on other sites

http://www.bbc.co.uk/news/business-30491161

The doomsday scenario mapped out by the Bank of England included an unemployment rate of 12%, inflation rising to 6%, and interest rates rising to 4.2%.

The Bank stressed that the scenario was "extreme".

Wow a doomsday scenario of interest rates rising to 4.2%.... they really stressed tested the system with this.... At 4.25% did more banks fail?

Share this post


Link to post
Share on other sites

http://www.bloomberg.com/news/2014-12-16/rbs-lloyds-barely-pass-u-k-stress-tests-as-co-op-bank-fails.html

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc barely passed stress tests set by the Bank of England, which said their capital at the end of last year fell short of requirements.

The two lenders “remain susceptible to a severe economic downturn,” the BOE said in a report today. Hypothetical losses in the test lowered RBS’s core capital to 4.6 percent, based on end-2013 data, just above the 4.5 percent pass threshold. Capital at Lloyds came in at 5 percent. Co-Operative Bank failed the assessment, ending up at minus 2.6 percent.

The U.K.’s eight biggest banks were examined on their resilience to a range of shocks such as a 12 percent unemployment rate, a BOE benchmark interest rate of 4 percent and house prices falling by a third. Today’s results were the first published by the central bank, which assumed the role of U.K. bank supervisor last year.

Thank god Gordon rescued the banks in such a decisive way....

Share this post


Link to post
Share on other sites

I imagine raising additional capital in 'Co-op bank' would further dilute Co-op Group share. I am not sure what it is a now but there is probably resistance to this as to me it means Co-op Group leaving banking.

Share this post


Link to post
Share on other sites

http://www.bankofengland.co.uk/publications/Pages/news/2014/169.aspx

So Co-op is completely screwed, unless the Co-op Group and hedge funds that own it want to dig deeper and stump up some more capital.

They should be shorting their own bank, they could make a fortune.

Share this post


Link to post
Share on other sites

You would have thought that if Co-op were in trouble, they'd be offering some half-decent savings rate to reflect the risk of lending to them and also to raise some capital. That's what Santander was doing around 2012. In this case, not a sign of anything even approaching a competitive savings rate, even among the ultra low rates out there today.

You are confusing capital and liquidity. Santander had a good capital base, but it raised interest on loans to ensure it had enough cash reserves.

Co-op is short on capital but has plenty of cash reserves. Increasing interest rates will attract more deposits that it is unable to lend die to insufficient capital. This will reduce profitability further and worsen is capital position.

Share this post


Link to post
Share on other sites

http://www.bbc.co.uk/news/business-30491161

Wow a doomsday scenario of interest rates rising to 4.2%.... they really stressed tested the system with this.... At 4.25% did more banks fail?

Interest rates at these levels actually help banks. So much of their profit is based on the margin between 0.1% current account rates and loan rates. Up to a point, higher rates means higher profit.

However, l agree that the high interest rate scenario had been avoided. Once rates get to 7%, things will get tight and BTL especially will collapse.

Share this post


Link to post
Share on other sites

You are confusing capital and liquidity. Santander had a good capital base, but it raised interest on loans to ensure it had enough cash reserves.

Co-op is short on capital but has plenty of cash reserves. Increasing interest rates will attract more deposits that it is unable to lend die to insufficient capital. This will reduce profitability further and worsen is capital position.

it is also the reason why sensible lending criteria are so important at this stage...but that has an effect on house prices as we have seen, so it seems it is up to the taxpayer to further help the banks with another bailout...HTB3.

Share this post


Link to post
Share on other sites

So are they deliberately setting the test to trip up the Co-op bank alone? If so, what is their aim regarding it?

Some other bank / shite outfit wants its, split it up, whatever.

Would never put the bankrupt of england being totally bent, they were totally arrogant and ignorant during the debt build up phase and totally bent in the way they have bailed the banks and screwed the prudent.

Share this post


Link to post
Share on other sites

So a retrenchment of house prices to 2007 levels would cause serious problems for 3/8 major UK lending institutions. And that's with the BoE running the tests - a deeply dubious institution who have (allegedly) had their fingers in virtually every fixing scandal of the last few years.

Think we'll see the UK economy reduced to ashes before real falls (i.e. below 2007 levels) in house prices are ever allowed.

Share this post


Link to post
Share on other sites

Or really, really useless.

Let's remember the context. The Co-op is dodgy. RBS and HBOS/Lloyds were dodgier and we had to directly bail them out. Barclays probably lied in raising private investor capital so we didn't. HSBC is so dodgy it was deemed to big to even go there: http://www.businessweek.com/ap/2012-12-11/hsbc-to-pay-1-dot-9b-to-settle-money-laundering-case. But all of them continue to receive an implicit taxpayer guarantee.

Share this post


Link to post
Share on other sites

Richard Branson would quite like it.

I fail to see how, in the current retail climate, it would be better to take over a toxic bank than to simply create a new one (with proper modern software/systems in a couple of new greenfield HQs). Branches are so underutilised these days so he could rent square ft in a National chain with high footfall. Boots or WH Smiths spring to mind.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   211 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.