Christmas Stock picks: Vp 22/12/2011
Benefits of past investment will benefit Vp, suggests Les Copeland
Sectors: Finance
Stressful time for banks
Traditionally, investors prefer regulators to be understanding rather than draconian. But holders of bank shares have reacted with dismay on learning that the ‘stress tests’ used by the Financial Services Authority to gauge the strength of Britain’s banks in a deep recession might have been less severe than had been assumed in financial markets.
The FSA published details of the scenarios used to test the banks, including Royal Bank of Scotland, Barclays and Lloyds, which it said had been ‘deliberately designed to be severe’. Among its assumptions were unemployment peaking at no more than 12 per cent of the workforce, a six per cent fall in gross domestic product from peak to trough and no economic growth until 2011, with house prices falling 50 per cent from 2007 levels and commercial property showing a 60 per cent decline.
However, many analysts argue that this does not represent a true ‘Doomsday’ scenario. Several have commented that they expected the tests to be harsher to provide a truer picture of the banks’ resilience.
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