No surprise, really, in news that Bloomberg has had a Freedom of Information request to find out the results of the banking stress tests in the UK turned down.
This is Britain, after all.
Disclosure of the results “at this time may lead to uncertainty in financial markets, either in relation to specific institutions or more generally,” the Treasury said in its response to Bloomberg. “Such instability could require further action by the authorities.”
That’s just a regular fob-off from officialdom. But the suspicion here is that one reason both the HM Treasury and the FSA have been so tight-lipped about the British stress tests is that they would find it difficult to explain the wildly different scenarios used compared with the the (non-)stress tests conducted in the US.
Of course, in testing its own banks, the US Treasury took a handful of mainstream economic forecasts and then alighted on an “adverse scenario” that was actually better than GDP and unemployment forecasts produced by the OECD. The result was a piece of carefully choreographed PR that helped fuel the recent sharp rally in equity prices.
In the UK meanwhile, if the whispers are to be believed, HM Treasury and the FSA actually included much darker forecasts in testing British banks – namely a 50 per cent fall in house prices and, most shockingly, a 16 per cent fall in GDP, peak to trough, over two years.
So why not publicise those facts? Simple: the media, and others, would likely treat these stress scenarios as an official forecast.
Related links:
Stress-testing, a retrospective view – FT Alphaville
Stressing the stress tests – FT Alphaville