Commercial Bank Stress Tests - Financial Economics

In this short video on financial economics, we look at stress testing of commercial banks and building societies.

Stress tests assess commercial banks’ ability to withstand severe shocks, but also to maintain the supply of credit under severe stress.

The Bank of England conducts annual stress tests to check the resilience of the banking system.

When a bank is found to have insufficient capital, then it must take steps to increase their capital reserves.

The 2019 Bank Stress Test for the UK

​Sterling exchange rate index falls by 28%
Monetary policy base interest rates rise to 4%
Household property prices fall by 33%
Share prices fall 41%
Start-to-trough fall in global GDP of -2.6%
UK real GDP falls by 4.7%
Unemployment rate rises to 9.2%