Banks fail the ‘stress test’

The Financial Services Authority (FSA) has published details of its ‘stress test’ for banks, which assumes that house prices will halve and unemployment will peak at 12 per cent. The FSA’s stress test applies fictional economic scenarios to see how banks’ balance sheets would cope, and the current stress scenario depicts a recession carrying on for at least a further year and a half, a 6 per cent shrinkage in the economy from peak to trough and an increase of an additional 1.5 million people losing their jobs. The FSA is keen to stress that the test is not a prediction.