The pros and cons of Bank of England stress tests - Professor John Thanassoulis
Responding to the results of the Bank of England's 'stress tests', Professor John Thanassoulis, from Warwick Business School, said: "The Bank of England are being diligent and fair to all the banks, but the downsides of this approach to financial regulation are that we publicly name certain banks as being distressed sellers of assets. For example the Co-operative bank has now been required to sell a large part of its mortgage book. A forced seller is one who will not receive a good price.
"The second downside is that the reputational damage of doing things of which the Bank of England does not approve will make banks risk averse. Whether this is bad is a question of degree. But if lending costs rise for individuals and businesses in the medium term then the poorest consumers and the small entrepreneurs will be the ones who suffer first.
"Having said that this regulatory system has many positives as banks will have to be constantly wary of what the Bank of England will permit. To prevent a box ticking culture the Bank of England is also working to make individuals personally liable through the Senior Manager Certification Regime. And the news of a weak bank might encourage movement of consumers and so help bring more active competition to the sector."
To interview Professor John Thanassoulis contact him on 01865 741 525 or via email John.Thanassoulis@wbs.ac.uk.