Banks under scrutiny from FSA
May 21, 2008
A number of banks are being closely monitored and scrutinized by the UK’s financial regulator, the Financial Services Authority, following the ongoing turmoil in the financial markets and the recent problems experienced by Northern Rock. According to recent reports, the regulator plans to start an investigation into how stable other banks are, particularly in cases where banks are lending out far more than they are taking in by way of savings from customers.
One industry professional stated: ‘The banks have been told to open their books. They need to prove they have stress-tested their finances to ensure they are prepared for the risks inherent in these market conditions.’ Experts state that the Financial Services Authority is going to want to look closely at some lenders that are being classed as high risk, and will want to check on the stability and viability of these banks.
A number of banks have been placed in the high risk group according to some reports, and these include Paragon, the Alliance and Leicester, and the Bradford and Bingley. The FSA has noted that these lenders have high loans to savings ratios, which outs them at increased risk. Recent problems with Northern Rock resulted in savers taking out over £2 billion worth of savings amidst worries that the bank would fold after it went to the Bank of England for a loan.
The Financial Services Authority wants lenders to approach the Bank of England in the same way as Northern Rock did in the event that commercial funding in not available when needed. Inter-bank lending has become more difficult and expensive as a result of the state of the financial markets, which has added to the problems being experienced by many banks and lenders.
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