U.K. Banks May Face Stress Tests Tuned to Economic Boom and Bust

The Bank of England will lay out its approach to stress testing banks next week, bringing in its most recent thinking about the way the financial system interacts with the business cycle and how to smooth peaks and troughs in lending.

BOE Deputy Governor Jon Cunliffe said in July that the U.K. central bank was looking at ways of using stress tests to encourage banks to lean against the cycle. Because banks typically boost lending in good times, fueling the expansion and storing up risks to stability, and then slash it in bad times, deepening the slowdown, regulators are seeking ways to reverse this behavior.