July 12, 2018 / 6:26 AM / 11 days ago

BoE adds systemic buffers to 2018 stress test of banks

LONDON (Reuters) - The Bank of England (BoE) said this year’s stress test of major banks will measure how non-core capital buffers stand up to market and economic stresses.

FILE PHOTO: Workers relax during the lunch hour outside the Bank of England in the City of London August 6, 2013. REUTERS/Toby Melville/File Photo

The test, introduced since the financial crisis a decade ago forced British taxpayers to bail out several lenders, has focused on the resilience of a bank’s core capital buffer.

But the BoE said on Thursday this year’s test would also include secondary buffers held by the banks to reflect their domestic and global systemic importance.

The BoE said the “uplifts” assumed from including a systemic risk buffer would add 2.5 percent to the overall hurdle rate of Lloyds Banking Group (LLOY.L), and 1 percent to those of Barclays (BARC.L), HSBC (HSBA.L), Royal Bank of Scotland (RBS.L), Santander UK and Nationwide.

The BoE also said it was making changes to how it assesses another secondary buffer knows as Pillar 2A, a measure of financial strength that assesses a bank’s capacity to manage risk.

However, the changes being made specifically to the treatment of Pillar 2A capital in the test mean that “on average, hurdle rates are expected to be lower than they would be under the previous calculation” for that buffer.

The result of this year’s test is due around year-end.

Reporting by Huw Jones, editing by Sinead Cruise and John Stonestreet

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