Leading British banks to be put to tougher stress tests

Britain's leading banks will soon be put to tougher stress tests by the Bank of England as part of the government's efforts to prevent the repeat of the 2008-type economic crisis, according to a report published by Sky News.

The report, published before the formal publication of the stress tests by the central bank, says that the central bank will order eight of the country's biggest lenders and building societies to prove that they are capable of withstanding sharp falls in property prices and sudden increases in interest rates.

More precisely, lenders would be asked to prove that could withstand a 35 per cent decline in house prices and an increase of up to 5 per cent in interest rates. It may be noted here that key interest rates in the country have remained at a record low of 0.5 per cent over the past five years.

The Treasury said in a statement, "The government created the new regulatory system in order to build a resilient economy and avoid repeating the mistakes of the past. Building strong banks . a core part of our long-term economic plan."

The formal publication of the Bank of England's new stress tests for banks is scheduled for Tuesday this week.

RBS, Lloyds Banking Group, Barclays, Standard Chartered, HSBC, Co-operative and the British arm of Spanish banking giant Santander, along with Nationwide Building Society will reportedly be subjected to the central bank's new stress tests.

So-called stress tests for banks have been in focus since the economic slump of 2008, when banks across the globe collapsed due to their inability to withstand losses on loans and changes in money markets.