Bank of England seeks tougher tests for lenders

Bank of England seeks tougher tests for lenders

The Bank of England has asked for stringent new tests for lenders to determine how they would cope in an 'extrême' disaster that plunges and sparks a rapid change in government policies.

Sam Woods, the head of UK's financial stability watchdog, suggested that the city need to be put through a more rigorous scenario, having so far proved that banks and insurers could survive'slow burn' changes over a period of 30 years.

He added that he is waiting for an opportunity to test the City's resilience against a'very large climate event' that knocks out a major financial hub like London, Paris or New York and sends shockwaves through global markets. In the wake of the 2008 banking crisis, its watchdog, part of the Bank of England, was established to monitor financial stability.

m talking about one that will lead to a dramatic change in policy from government and governments... and have a very sudden effect on financial markets.

The PRA hasn't confirmed plans to repeat its inaugural climate stress tests, which last year showed that the UK's 19 largest banks and insurers would collectively have to shoulder up to £334bn of losses through defaults, lawsuits and stranded assets by 2050 unless action was taken to curb rising temperatures and sea levels.

It is clear that fresh tests would lead to the kind of substantial changes in climate finance rules that campaigners have been calling for.

The Bank of England has faced criticism for failing to reveal the test results of individual lenders - including HSBC, Lloyds, NatWest and Barclays - in a move that has limited investors' and campaigners' ability to scrutinise their climate preparedness.

It has also been accused of failing to establish climate capital requirements that would require lenders to put aside funds to counterbalance climate-exposed assets such as mortgages and loans to heavy polluters.

Banks would be more expensive to offer loans and services to fossil fuel companies and carbon-intensive projects. The climate-related risks on banks' balance sheets have been reflected in current capital requirements, Woods said. But he admitted that those calculations would 'need to evolve through time'.

However, he said banks were already expected to account for those slow-shift changes but that more rigorous regulatory drills would confirm where they were ready for a sudden shift in climate-related risks.