Lenders fear management firings if they fail stress tests

 
Tim Wallace
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BOSSES should not be fired by the Bank of England if banks or building societies perform poorly in the upcoming stress tests, industry groups said yesterday.

The Bank of England is setting out plans for annual stress tests so regulators and markets can see lenders’ strengths.

The Building Societies’ Association and the British Bankers’ Association both welcomed the transparency it will bring.

But the groups also warned the repercussions of failure may be too severe and destabilising – under current plans resulting actions could include “withdrawing certain permissions or changing banks’ management.”

The industry rejected that part of the plan in its response to the authorities.

“There are dangers in making it explicit in a public document that such actions could be contemplated from reviewing the outcomes of stress testing,” the groups said.

“We believe that a more proportionate alternative would be to give those banks that are in need of further management actions a period of time to develop and submit revised capital plans.”