BoE is broadening stress tests to add extra buffers

Written by Oliver Wade

The Bank of England (BoE) yesterday announced that it will broaden the scope of its bank stress tests to allow room for additional buffers designed to protect the UK’s financial system.

The tests, which are due to take place towards the end of the year, will include the systematic risk buffer, the bank’s Prudential Regulation Authority said in a statement.

During the 2018 stress tests, the BoE expects “uplifts” in the hurdle rates of capital which banks must achieve at the end of the test. Lloyds bank will be hit the hardest, with an extra 2.5 per cent on its hurdle rate, while Royal Bank of Scotland will have 1.5 per cent added. Barclays, HSBC, Santander UK and Nationwide will all have 1 per cent added.

Some larger UK banks are required to hold additional capital, the systematic risk buffer, to ensure that losses in a major financial crisis do not cripple the bank and threating the stability of the entire British financial system.

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