Deloitte comments on the Bank of England’s 2015 stress test
30 March 2015
Clifford Smout, Partner in Deloitte’s EMEA Centre for Regulatory Strategy, said:
“In several respects this is a tougher stress scenario than last year, and that effect will be exacerbated by the methodological changes made, particularly in respect of traded risk. As a result, we are likely to see markedly different impacts from this exercise compared to last year, and perhaps a reordering of the final rankings.
“The extended stress scenario will lead to a greater impact on global, non-retail focussed banks. The assumptions of disinflationary pressures and a low interest rate environment reduce the ability of banks to mitigate losses with income. The persistence of the scenario - over a five year horizon rather than three - will compound those effects.
“The emphasis from the Bank of England’s stress test is on process as well as outcome. The statement that banks may still be required to strengthen capital positions even if thresholds are met, ensures that – as in the US – the Bank maintains control over where to place the finishing line. Banks won’t know for sure that they have crossed it until the Bank tells them. Even then stress testing is no longer an exercise to pass and then forget, but it is rapidly becoming a way of life.”
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