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Creditfix LB 03-2017

Banks to Face New Stress Tests and Consumer Credit Review

The Bank of England announced this week that they are preparing to put the UK’s seven largest banks through an additional examination alongside its regular annual stress test.

The annual stress test is to measure how banks would fare if the economy experienced a severe shock.

The new test announced by the Bank of England, to take place each alternate year, will assess banks? resilience to a wider range of risks beyond those emanating from the financial cycle – such as persistent low interest rates and high costs.

There will also be a longer-term test that will examine how banks would cope with a lengthy squeeze on profits from weak growth and mounting competition.

The seven lenders undertaking the annual stress test – Barclays, HSBC, Royal Bank of Scotland, Lloyds Banking Group, Santander UK, Standard Chartered and Nationwide – will also face the longer-term assessment.

The bank also announced that the Prudential Regulation Authority (PRA) will launch a review into banks? lending standards in relation to consumer credit following the soaring growth of the sector.

This new review by the PRA will focus on underwriting standards and the risk models employed by banks.

The moves come after data has shown that British consumers appear to be increasingly turning to debt to finance spending amid slow wage growth and quickening inflation.

Unsecured borrowing rose at an annual rate of more than 10% in the final months of 2016, according to BOE figures.

The BoE?s Financial Policy Committee, which monitors risks to the stability of the U.K. financial system, will also oversee banks? contingency plans to mitigate risks as the process for withdrawing from the EU unfolds following the triggering of Article 50 on Wednesday.

The committee feels that Britain’s EU exit carries potential risks and that it is working with banks to mitigate them. It said lenders should have plans in place to cope with a variety of possible outcomes from the coming talks.

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