Q Why are these tests happening?
A Regulators have made banks hold more capital in an effort to make them less likely to fail when a crisis hits. Now capital buffers are getting close to the required size, the authorities want to see what kind of crises they will protect against.
Q How will they work?
A The Bank of England will look at potential economic changes, like rising unemployment or falling house prices, and calculate what effect they will have on banks’ capital buffers.
Q What impact will they have?
A If banks look like they would be in trouble, they could be asked to hold more capital. But that depends on the likelihood of a crisis occurring, as well as the damage it could inflict.
Q Will it work?
A That is the big question. It depends on how good their data is, if they spot the risks coming, and whether overseas authorities help out.