Business and Other Briefings
FSA: The publication in the US of the results of bank stress tests has provoked considerable interest in the use of stress testing by authorities in other countries, in particular in Europe. Stress testing can & has been used in a variety of different ways and the appropriate degree of disclosure varies according to the purposes of the tests.
The UK authorities have not applied stress testing in the same way as in the US – a single exercise covering simultaneously the top 19 banks which account for two thirds of the assets of the US banking system. Instead, over the last 8 months since the intensification of the financial crisis, the Financial Services Authority (FSA) has:
* Greatly increased the use of stress tests as an integral element of their ongoing supervisory approach
* Begun the process of embedding this revised approach in their intensive supervisory regime
* Used stress tests to inform policy decisions such as access to the Credit Guarantee Scheme (CGS) and the Asset Protection Scheme (APS) working closely with the other Tripartite authorities
The current stress scenario models a recession more severe & more prolonged than those which the UK suffered in the 1980s & 1990s and therefore more severe than any other since WWII. It assumes a peak-to-trough fall in GDP of over 6%, with growth not returning until 2011 and only returning to trend growth rate in 2012.
It models the impact of unemployment rising to just over 12% and, crucially, the impact of a 50% peak-to-trough fall in house prices and a 60% peak-to-trough fall in commercial property prices.
Press release ~ Committee of European Banking Supervisors (CEBS) ~ Financial Services Authority (FSA)
FSA: The Financial Services Authority (FSA) has proposed to extend the current disclosure regime for significant net short positions in the stocks of UK financial sector companies, due to expire on 30 June 2009. Extending the regime will continue to help reduce the potential for abusive behaviour & disorderly markets. The FSA expects that, in the longer term, the requirements will be replaced by a broader short selling regime for all UK stocks.
As is the case at present, disclosures will only need to be made if a net short position exceeds 0.25% of a company’s issued shared capital or increases by 0.1% bands above that (e.g. net short position reaches 0.35%. 0.45% and so on).
Press release ~ Consultation: CP09/15 - Extension of the short selling disclosure obligation (closes on 12 June 2009) ~ List of firms covered by the provisions
FSA: The Financial Services Authority (FSA) is consulting (closes on 5 September 2009) on additional guidance to ensure that building societies diversifying away from the traditional business model have the risk management systems & skills necessary to operate safely – See ‘Consultations’ section for more information.
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