UK Banks Ordered To Run New Stress Tests For A Potential Double Dip
Daily Mail
FSA sets out its nightmare double-dip slump scenario
Banks must be prepared for a double-dip recession and record unemployment, the country's financial watchdog has warned, in a sign that Britain may not yet be past the worst of the financial crisis.
The Financial Services Authority revised its worst-case parameters for the stress-testing of banks to include a GDP decline of a further 2.4 percentage points by the end of 2011 - or an 8.1 per cent peak to trough fall - with unemployment rising to an all-time high of 13.3 per cent and house prices falling 36 per cent from 2010 to the end of 2014.
The nightmare scenario - which envisages factors that might prevent banks from keeping core tier one capital ratios above the required 4 per cent - is even worse than the regulator's gloomiest assessment at the depths of the recession last March...
-Related-
UK: Thisismoney.co
Economy Watch: Has recession really ended?
It depends on your definition. If it's the return of growth over one quarter, as many economists consider, then Tuesday (26 Jan) marked the official announcement of the end of recession. ONS figures showed that the economy grew 0.1% in the fourth quarter - October to December 2009. This was then revised upwards to 0.3% on 26 February.
But there was little celebration given that economists had expected growth of 0.4%. GDP figures are usually tweaked months after the event as a truer picture emerges. So 0.1% growth could easily be revised into a minus figure and therefore mean no end in the recession.
The recession was the longest since records began and saw a 6.2% fall in output [How the recession compares with previous ones]. The full year of 2009 saw the economy shrink 4.8% - the biggest calendar-year fall since 1921 [Why 1921 was such a bad year].
We were left behind by France, Germany and most recently the US, with those economies back in growth in the summer.
So if the recession has ended, the big question is what next?
Some analysts warn the UK could be in for a very tough 2010. Even BoE boss Mervyn King warned in February that the recovery would be slower than he'd expected...
-Related-
Just how damaging has the 'Great Recession' really been?
We compare 2008-09 to the other notable declines from the last fifty years...
›› Mid-1970s (-3.3% growth over 3 quarters)
Why?
Some suggest that 1973's oil price shock was to blame, but a stock market crash certainly didn't help, either. Oil supply problems started with a disagreement between the US and OPEC (Organization of the Petroleum Exporting Countries) - a cartel of twelve oil rich countries - in 1973 and and quickly escalated into a disaster for oil dependent nations such as Britain. OPEC capped crude oil supply, which in turn sent prices rocketing, and the additional costs were passed on to businesses and consumers.
›› Early 1980s (-4.7% growth over 5 quarters)
- Why?
The finger is often pointed at Margaret Thatcher's new economic policies. These included the privatisation of many nationally-owned enterprises, restrictions on trade unions, and interest rate hikes aimed at lowering inflation. Such policies are said to have created an 'unnatural' break in the economic cycle, provoking recession.
›› Early 1990s (-2.5% growth over 5 quarters)
- Why?
The Savings and Loans crisis in the US (commonly referred to as the S&L crisis) saw the failure of 747 thrifts, which are similar to UK mutuals. The pain of an ensuing banking crisis rippled over onto nations with economies strongly linked to the US - which, of course, included Britain.
›› 'Great Recession' 2008-2009 (-6% growth over 6 quarters)
- Why?
A truly global recession seemed to have had its origins in dubious and unscrupulous banking practises. These came to light in a sub-prime mortgage crisis in 2008 and the problems escalated into full-scale banking collapses across the world.
FSA sets out its nightmare double-dip slump scenario
Banks must be prepared for a double-dip recession and record unemployment, the country's financial watchdog has warned, in a sign that Britain may not yet be past the worst of the financial crisis.
The Financial Services Authority revised its worst-case parameters for the stress-testing of banks to include a GDP decline of a further 2.4 percentage points by the end of 2011 - or an 8.1 per cent peak to trough fall - with unemployment rising to an all-time high of 13.3 per cent and house prices falling 36 per cent from 2010 to the end of 2014.
The nightmare scenario - which envisages factors that might prevent banks from keeping core tier one capital ratios above the required 4 per cent - is even worse than the regulator's gloomiest assessment at the depths of the recession last March...
-Related-
UK: Thisismoney.co
Economy Watch: Has recession really ended?
It depends on your definition. If it's the return of growth over one quarter, as many economists consider, then Tuesday (26 Jan) marked the official announcement of the end of recession. ONS figures showed that the economy grew 0.1% in the fourth quarter - October to December 2009. This was then revised upwards to 0.3% on 26 February.
But there was little celebration given that economists had expected growth of 0.4%. GDP figures are usually tweaked months after the event as a truer picture emerges. So 0.1% growth could easily be revised into a minus figure and therefore mean no end in the recession.
The recession was the longest since records began and saw a 6.2% fall in output [How the recession compares with previous ones]. The full year of 2009 saw the economy shrink 4.8% - the biggest calendar-year fall since 1921 [Why 1921 was such a bad year].
We were left behind by France, Germany and most recently the US, with those economies back in growth in the summer.
So if the recession has ended, the big question is what next?
Some analysts warn the UK could be in for a very tough 2010. Even BoE boss Mervyn King warned in February that the recovery would be slower than he'd expected...
-Related-
Just how damaging has the 'Great Recession' really been?
We compare 2008-09 to the other notable declines from the last fifty years...
›› Mid-1970s (-3.3% growth over 3 quarters)
Why?
Some suggest that 1973's oil price shock was to blame, but a stock market crash certainly didn't help, either. Oil supply problems started with a disagreement between the US and OPEC (Organization of the Petroleum Exporting Countries) - a cartel of twelve oil rich countries - in 1973 and and quickly escalated into a disaster for oil dependent nations such as Britain. OPEC capped crude oil supply, which in turn sent prices rocketing, and the additional costs were passed on to businesses and consumers.
›› Early 1980s (-4.7% growth over 5 quarters)
- Why?
The finger is often pointed at Margaret Thatcher's new economic policies. These included the privatisation of many nationally-owned enterprises, restrictions on trade unions, and interest rate hikes aimed at lowering inflation. Such policies are said to have created an 'unnatural' break in the economic cycle, provoking recession.
›› Early 1990s (-2.5% growth over 5 quarters)
- Why?
The Savings and Loans crisis in the US (commonly referred to as the S&L crisis) saw the failure of 747 thrifts, which are similar to UK mutuals. The pain of an ensuing banking crisis rippled over onto nations with economies strongly linked to the US - which, of course, included Britain.
›› 'Great Recession' 2008-2009 (-6% growth over 6 quarters)
- Why?
A truly global recession seemed to have had its origins in dubious and unscrupulous banking practises. These came to light in a sub-prime mortgage crisis in 2008 and the problems escalated into full-scale banking collapses across the world.