May 19, 2014 / 12:33 PM / in 4 years

BoE says banks nervous over releasing details of health checks

LONDON (Reuters) - Banks in Britain broadly support Bank of England plans for yearly checks on their capital levels, although they disagree on how detailed the published results should be.

Eight of Britain’s biggest banks, including Barclays (BARC.L), RBS (RBS.L), Lloyds (LLOY.L) and HSBC (HSBA.L), will undergo a health check this year to see if they hold enough capital to withstand a 35 percent slump in house prices and a spike in interest rates to 4 percent.

This year’s exercise begins what will become an annual test. It will be expanded to include other banks, to see if they can withstand market shocks without taxpayer money.

The BoE published on Monday a summary of the results of a consultation last year on how the stress test could be developed in the medium term. Responses to that consultation led the central bank to tweak this year’s test.

“There was broad support for including major UK banks and significant UK subsidiaries of global systemically important banks in the framework,” the BoE said.

There was also support for including medium-sized banks, if their test is less comprehensive, and for testing clearing houses, whose role is set to become more important.

Clearing houses are third parties who guarantee trades such as financial derivatives. Regulators want more of the market to be cleared, to increase transparency and safety.

The Bank said that among the 23 responses, views differed over how detailed the published results should be.

    “Some felt that bank specific results should not be disclosed under any circumstances, while others saw this as essential for the credibility of the framework,” the summary said.

    The BoE had proposed that the banks not only face a common test but also have their own “bespoke” test bolted on. That test will focus on particular parts of the bank, such as exposures to emerging markets.

    This bespoke test would be expected to result in higher losses, a principle questioned by many respondents, who said it amounted to banks pre-judging the outcome of the test. A bespoke element was not included in this year’s test, contrary to some expectations.

    The Bank said the responses led it to increase international coordination of bank health checks by aligning this year’s test more closely with a pan-European Union health check of top lenders, four of which are from Britain.

    It has also given greater clarity on this year’s thresholds for passing the test as respondents wanted. The central bank will publish another paper setting out how it will develop the stress test of lenders beyond this year.

    Reporting by Huw Jones; Editing by larry King

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