Bank of England stress tests to exclude UK units of banks not in EU

The Bank of England won’t include UK units of banks located outside the EU in its 2015 stress test and is unlikely to do so next year, according to a person with knowledge of the matter.

The central bank is gathering data from UK subsidiaries of non-EU banks as part of a study on market risk, said the person, who asked not to be identified. The study is led by the BoE’s Prudential Regulation Authority using the same data-gathering methods as it did for last year’s bank stress test, according to the person.

The authority is in the final stages of preparing scenarios and methodology for this year’s stress test, which won’t cover foreign branches or subsidiaries, the person said. The BoE said in its 2013 stress-testing framework that “significant UK subsidiaries of foreign global systemically important banks” were “likely to be included” in the “medium term.”

The BoE examined last year whether the UK’s eight biggest banks, including HSBC Holdings Plc and Lloyds Banking Group Plc, could survive an interest-rate increase to 4% by the end of 2015 from the current record-low 0.5%, coupled with an economic and financial catastrophe so severe that it’s only happened once in the last 150 years.

In this year’s test, the BoE has said it will beef up scrutiny of geopolitical, currency and commodity risks.

Bloomberg