“The Bank of England’s annual stress tests of the UK’s banks, designed to ensure Britain’s lenders will not be at the heart of another destructive financial crisis, have been branded “worse than useless”, by a new report.
“Kevin Dowd, professor of finance and economics at Durham University, argues in a paper published today by the Adam Smith Institute that the Bank’s tests, which model various adverse economic scenarios each year such as a major fall in UK house prices or a Chinese property crash, have a series of “fatal flaws” and that the central bank is “asleep at the wheel”.
“In a speech last year Robert Jenkins, a former member of the Bank’s Financial Policy Committee and now a senior fellow at Better Markets, said: “For stress testing to be effective regulators must know which risks to stress and by what degree to do so. However hardworking and intelligent they may be they are also human. They, like the bankers they regulate will at some point get it wrong.”
To read the full Independent article by Ben Chu click here.