UK Banks - stress tests see 50% house price fall

Food for thought, as reported by RTE Business news:

UK banks stress tests see 50% house price fall

Thursday, 28 May 2009 13:11

Britain’s financial regulator said the tests it uses to gauge banks’ capital strength assume house prices will halve and GDP shrink by 6% in the current recession, making it the country’s worst for more than 60 years.

Publishing details of its ‘stress tests’ for the first time, the UK Financial Services Authority said they assumed unemployment peaking at 12%, and no growth in the economy until 2011.

The tests also factor in a 60% peak-to-trough slump in commercial property values, outstripping the assumed 50% drop in residential prices.

Advertisement’The current stress scenario models a recession more severe and more prolonged than those which the UK suffered in the 1980s and 1990s and therefore more severe than any since the Second World War,’ the FSA said.

The FSA said it would not disclose how individual banks had fared in the stress test. But it confirmed that the test had been applied to Royal Bank of Scotland and Lloyds Banking Group as part of their application to join the government’s asset protection scheme, under which the state insures banks against losses on risky debt-backed assets.

In March, Barclays said it had undergone a ‘detailed’ stress test which had shown that it met the FSA’s capital requirements. No other banks have commented on whether they have been tested or on the outcome of any test.

According to the closely watched Halifax house price survey, UK residential home values were down 22% in April from their August 2007 peak, against the FSA’s assumption of a 50% fall.

Story from RTÉ Business:
rte.ie/business/2009/0528/britain.html