Bank of England Gets Anxious About Stress TestsScott Hamilton
Bank of England policy makers are worried the central bank will struggle to properly implement stress tests this year because of the strain the health checks will put on its resources.
Members of the Financial Policy Committee have expressed “some concern” about the “resources available” for the review of British lenders, according to minutes of a meeting of the BOE’s governing body. Deputy Governor Jon Cunliffe told the board that the workload may hamper the central bank’s ability to supervise lenders, the minutes show.
The BOE is carrying out its first round of public stress tests this year since taking over banking supervision from the Financial Services Authority in 2013. Officials told Governor Mark Carney in February that the unit conducting the tests, the Prudential Regulation Authority, needed to step up hiring to ensure it had enough staff.
The FPC’s latest concerns were revealed in the minutes of the April 16 meeting of the BOE’s Court of Directors, published today. The Court said one of its main objectives for the coming year was to ensure the effectiveness of the PRA.
Cunliffe, the central bank’s deputy governor for financial stability, “agreed that the stress-testing program would put pressure on the PRA Risk Specialists in particular and might divert resource from supervision,” according to the minutes.
The PRA’s directors have previously expressed unease about the regulator’s ability to undertake asset quality reviews of banks. The Financial Stability Board said last year the authority may to need to reassess whether it has enough resources to effectively carry out regular stress tests.
Under the assessments, the BOE will review how the U.K.’s biggest lenders would cope with a 35 percent drop in house prices, a rise in interest rates to 4 percent and an increase in unemployment to 12 percent.
The meeting was the first for the Court since Carney unveiled plans in March to fuse BOE departments and better integrate its monetary policy, financial stability, markets and supervision roles in the biggest overhaul of the institution this century. The governor didn’t attend as he was at the funeral of former Canadian Finance Minister Jim Flaherty.
The minutes revealed that the reorganization will result in more than 700 staff moving locations within the BOE’s London offices. The central bank is also working to erase salary imbalances between BOE and former FSA staff, and the Court in April approved a proposal for a new reward model.