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Banks: Stress Tests

House of Lords written question – answered on 20th July 2011.

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Photo of Lord Myners Lord Myners Labour

To ask Her Majesty's Government whether the Financial Services Authority was fully consulted at all stages on the 2011 bank stress tests conducted by the European Banking Authority; and whether they agreed with the methodology and the proposed form of disclosure of the results.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

The Financial Services Authority (FSA), as a member of the European Banking Authority (EBA), has been closely involved with the stress test design and implementation.

FSA involvement predates the establishment of the EBA at the beginning of 2011. The FSA has been involved in both the technical level of the stress test design and implementation, in the governance of the EBA through FSA representation at the EBA Board of Supervisors and Board of Management, and through the secondment of an FSA stress test expert to the EBA Quality Assurance Task Force, to help ensure consistent application of the stress test across EU banks.

EBA decisions are made by the Board of Supervisors and inevitably involve some compromises to reach agreement. However, the FSA believes this year's EU-wide stress test is credible and robust, and, taken as a whole, is tougher than last year's Committee of European Banking Supervisors' stress tests, with a tough peer review process and a tighter definition of Core Tier 1 capital.

The FSA believes in the value of transparency and orderly disclosures of relevant risk information to the market on a comparable basis. The EBA stress test and risk exposure disclosure templates should help market participants to reach better informed and more balanced judgments about the relative risk and soundness of individual financial institutions.

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