LONDON Jan 21 British proposals to force out
bosses at any bank shown as weak under a new regime of health
checks go too far and need to be reconsidered, Britain's banks
The Bank of England (BoE) has said it could install new
management at any bank where problems are unearthed by more
stringent "stress tests", due to start later this year and which
go further than regulators elsewhere.
The proposals are part of efforts to clean up banks and
avert a repeat of the financial crisis of 2007-2009.
A joint response this month from the lobby groups of
Britain's banks and building societies said management change
should not be part of the outcomes of the stress tests, instead
arguing the tests should encourage debate and formulation of
strategies to address areas of weakness.
"A more proportionate alternative would be to give those
banks that are in need of further management actions a period of
time to develop and submit revised capital plans in line with
the publication of the results," the response paper said.
Regulators around the world are setting up more intense and
challenging "stress tests" of bank finances, after criticism
past tests have missed trouble spots, especially in Europe.
The aim is to ensure banking systems and individual firms
are strong enough to withstand a deep recession or other
unexpected problems and avoid a repeat of the financial crisis
when dozens of banks needed taxpayer help.
Changing management is one of a wide range of possible
remedies the BoE said it could use when it started a
consultation in October. It could also force banks to cut
dividends, raise equity or axe some activities if they are shown
to be vulnerable in the annual health check.
Britain's banks have conducted ad-hoc tests since 2009 and
the BoE is stepping up its activities after taking over industry
regulation in April. The European Central Bank has also pledged
to make tests of more than 100 lenders this year more stringent
than in the past.
Britain is making its process more akin to the U.S. testing
of its banks, one senior UK banker said. The U.S. Federal
Reserve's tests were praised for helping recapitalise banks
quickly after the crisis, and they have evolved so they are now
a tool for the Fed to tell banks how much they can pay in
dividends or buy back shares.
The BoE said evolving its process will take a number of
"Stress testing can provide a quantum leap in transparency
and accountability," Paul Tucker, former BoE deputy governor,
said when the consultation was launched.
Banks will be tested against a common test and a bespoke set
of circumstances specific to each lender, which could for
example include losses from shipping loans or trouble in Spain.
Measures will this year cover the top eight banks and
building societies, including Barclays, RBS and
HSBC, and in future could be broadened out to include
big UK subsidiaries of major international banks.
Banks said they were supportive of the process, but the
timetable for this year's test "seems very challenging".
The Bank of England will tell banks the risks the tests will
explore this month and issue the common scenarios by the end of
March. Banks have to send in their bespoke test scenarios by
April 4. The proposed timeline said they have to submit results
by the end of June, with remedial actions proposed and results
published in the fourth quarter.
The BoE said it was undecided on whether to release results
for individual banks as well as aggregate findings.
Banks said the methodology and aggregated results should be
published, but advised "caution over routine disclosure of
The BoE said it did not intend to set a pass/fail regime
under the stress tests, and results "are not expected to be
mechanically linked to policy responses".