Thursday, May 28, 2009

Something the FSA might have got right, they expect 50 % falls in house prices

UK bank stress tests assume 50% house price fall

LONDON, May 28 (Reuters) - Britain's financial regulator said the tests it uses to gauge banks' capital strength assume house prices will halve and GDP shrink 6 percent in the current recession, making it the country's worst for more than 60 years. Publishing details of its "stress tests" for the first time, the Financial Services Authority said they assumed unemployment peaking at 12 percent, and no growth in the economy until 2011. The tests also factor in a 60 percent peak-to-trough slump in commercial property values, outstripping the assumed 50 percent drop in residential prices.

Posted by gone-to-colombia @ 08:15 PM (970 views)
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4 thoughts on “Something the FSA might have got right, they expect 50 % falls in house prices

  • Eternal Sceptic says:

    50% does not seem a worst case scenario to me, it seems a likely probability. I would suggest a trip back to thedrawing board

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  • I bet this won’t make it onto the front of the Daily Expresso, or in Annie Ashwort’s lastest braying nonsense.

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  • Surely the stress tests are ‘worst case scenarios’, rather than any predictive.

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  • Ketha is spot on. The FSA stress tests are meant to represent absolute doomsday scenario and are a far cry from what they expect in reality. The logic is that if a bank can withstand these conditions, without the need for further capital, they should be allowed to continue with the government forcing recapitalisation as they pose no realistic threat to the stability of the UK economy. Needless to say most papers and commentators choose to ignore this in favour of some more cheap headlines, but this doesnt help Joe Public take a balanced view of our economic situation.

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