Global economic crash WARNING: France urges stress tests fearing worst

Wednesday, April 25, 2018
By Paul Martin

GLOBAL economic uncertainty has forced France’s central bank chief to demand stress tests for the country’s lenders to see whether they could cope with another financial crisis in the Eurozone.

By DAVID DAWKINS
Express.co.uk
Wed, Apr 25, 2018

Regulators fear the world could plunge into chaos if a new crisis – be it war, protectionism, or an economic downturn – shocks the financial system and causes liquidity to dry up.

They want to ensure there is enough money in the bank to withstand the financial trauma of a worst-case-scenario banking crisis in the Eurozone.

Bank of France governor Francois Villeroy de Galhau told a conference at the French central bank: “To measure the global impact of shocks, we need in particular to have macro stress tests of liquidity, including for investment funds.

“These actors are potentially vulnerable to runs in case of a market shock if they are open and don’t have a way of capping buybacks.”

The US has been resistant to conduct broad-based, macro stress tests on its leading financial institutions. The head of the French financial markets regulator, Robert Ophele, said without a US commitment to the stress-testing of asset managers, it would be difficult to get a clear picture of the contagion risk to the Eurozone.

Against that backdrop, he said that rather than system-wide macro stress tests, it would be better to concentrate on more focussed stress tests.

The UK regularly stress tests its leading financial institutions. Last November the the Bank of England confirmed its seven-largest lenders – HSBC, Barclays, Lloyds Banking Group, Standard Chartered, Royal Bank of Scotland, Santander and Nationwide – would be able to continue lending even if Britain was to leave the European Union (EU) in 2019 on the terms of a ‘hard’ Brexit.

The BoE said in its half-yearly Financial Stability Report: “The FPC judges the UK banking system could continue to support the real economy through a disorderly Brexit.”

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