The Bank of England is to subject Britain’s biggest banks and building societies to a series of stringent tests to see if they would be strong enough to withstand the shock of a record 35% crash in house prices, a jump in interest rates and the worst protracted slump since the aftermath of the first world war. Policymakers will stress-test the country’s eight largest financial firms with a set of hypothetical scenarios intended to demonstrate if in extreme crisis they could avoid the taxpayer bailouts needed in 2008. Under the scenarios which banks are being asked to simulate sterling falls 30% in the first year, inflation peaks at 6.5% in early 2015 and the government’s benchmark borrowing costs peak at just below 6%. Mark Carney, the governor of the Bank of England, said the tests were needed to ensure the banks were resilient enough to withstand crises.
