The Financial Services Authority (FSA) Chairman Adair Turner said on Thursday that Britain’s tress test of its own banks will be tougher than that of the EU. The EU is currently conducting a pan-eurozone stress test of its banks and experts believe the exercise will be more meaningful than last year’s flawed exercise.
“I suspect you will find that our parameters will be tougher and tighter than the European ones. They were last year”, said Turner to reporters while releasing the regulator’s prudential risk report.
Turner said: “We think the European stress test will be a useful exercise”, since there was “more commonality” among countries about possible economic scenarios.
The stress test results of some 88 EU banks will be published in June this year. UK however, will not publish its own test results.
Since November 2008, all UK bank’s have conformed to FSA’s stress test standards, Turner claimed.
Talking about the new capital requirements as per Basel III norms, Turner said the biggest banks will capital surcharge.
“My own belief at the moment is we will end up with a global agreement for some level of surcharges. The debate is fundamentally about how much rather than whether or not there will be some”, he said, adding that “There is a significant global support for an element of equity. The argument that equity is the best form of it has significant support around the world”.
Talking about the financial risks because of the earthquake in Japan, David Rule of FSA’s prudential risk team said: “The risk we think is manageable on the banking side. On the insurance side it’s early days”.
FSA estimates show that total exposure of UK banks in Japan, including loans to Japanese companies in UK, amounts to £136 billion.
Turner said it’s important to see how Japanese economy copes with the situation since it is already one of the world’s most indebted countries.