Sam Bowman's comments on the Vickers Commission feature in IBTimes UK

Deputy Director Sam Bowman's comments on the Vickers Commission have featured in the International Business Times UK:

Sam Bowman, deputy director, of the Adam Smith Institute, told IBTimes UK: "Basically I think the Vickers Commission has come up with the wrong solution to the banking crisis.

"As I see it, we could either try to create a narrow banking system, where depositors' money is only lent out to extremely safe borrowers (e.g. the US, UK governments) and traditional loans are made by different financial institutions where the 'depositors' (more accurately described investors in this case) do not have immediate access to their funds, or we can try to make the banking system that we have as stable as possible.

"For stability, we want banks that are diverse and can withstand unexpected shocks. This is exactly the opposite of what Vickers will do – by splitting investment and retail arms of banks, Vickers makes both arms less steady.

"It's a mistake, I think, to equate systemic importance with size – America has thousands of small banks, but because they are very undiverse they are much more fragile than, say, Canada's banks, which are fewer in number but much more diversified," he said.

'Bank stress tests are inadequate' - author of ASI report "No Stress" writes letter to the Independent

Author of Adam Smith Institute report “No Stress: The flaws of the Bank of England’s stress testing programme” Professor Kevin Dowd has written a letter to the Independent:   

Bank stress tests are inadequate

 

James Moore’s article (18 June) on “No Stress”, my Adam Smith Institute Report on the Bank of England’s stress tests, dismisses its conclusions without any attempt to grasp its analysis.

 

Moore claims that the stress tests weren’t perfect, but the best the Bank of England could do; however, the analysis of the report shows that the BoE can, and should, be running safer tests. No one scenario can provide comfort that the system is sound.

 

Furthermore, the tests are based on an absurdly low safety standard, and if one stress-tests the tests against respectable standards all the banks would fail. They also lack credibility because the Bank can only allow the banking system to “pass”: anything else would imply that its own past policies have failed.

 

Moore might be satisfied with the results of the tests, but the rest of us should remain sceptical. Stress tests operate like a radar that is worse than useless because it cannot see the main hazards. We wouldn’t dream of sending out a ship or plane reliant on an unreliable radar. We shouldn’t do that with our banking system either.

 

Professor Kevin Dowd London SW1

Read the letter here.

ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.

The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.

Has Greek government been own worst enemy during negotiations? Sam Bowman argues NO in City AM

Deputy Director of the Adam Smith Institute Sam Bowman argues that Greece has been treated unfairly during debt negotiations in the City AM Debate Forum.

Greece has been badly mistreated by the rest of the EU. The structural reforms demanded by the Troika are desirable, though difficult in the current economic climate, but Greece has already cut state spending by 20 per cent and cut state employment by 30 per cent.

Greece has been running a primary surplus since 2013, and most of the €240bn in bailout money lent to the country was intended to service existing debt. Irresponsible borrowers, which Greece undoubtedly was, need irresponsible lenders too. At the onset of the crisis, European banks owned nearly $54bn of Greek government debt, and a Greek default would have damaged many of them. These were bailouts for Europe’s banks, not just for Greece.

The Eurozone’s refusal to restructure Greece’s debt, perhaps indexing it to nominal GDP as Greece’s finance minister has suggested, is therefore highly unreasonable. Greece has been at fault, but so have many other players in this sorry saga.

Read the full article here.

ASI report “No Stress” features on BBC Radio 4's Today Programme

Adam Smith Institute report “No Stress: The flaws of the Bank of England’s stress testing programme” has featured in the Financial Times:

ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.

The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.

ASI report "No Stress" features in the Financial Times

Adam Smith Institute report "No Stress: The flaws of the Bank of England's stress testing programme" has featured in the Financial Times:

The Bank of England’s stress tests of the banking sector have been attacked as “fatally flawed” for setting hurdles that are too easy to clear and giving false comfort about the safety of the financial system.

A report published on Thursday by the Adam Smith Institute, a free market think-tank, calls for the BoE annual stress tests to be scrapped, arguing they are “worse than useless” because they disguise weakness in the UK banking system.

The report has been written by Kevin Dowd, professor of finance and economics at Durham University, who is a vocal critic of the tests and criticised them at a Treasury select committee hearing in March.

Read the full article here.

ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.

The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.

 

ASI report "No Stress" features in City AM

Adam Smith Institute report "No Stress: The flaws of the Bank of England's stress testing programme" has featured in City AM:

A THINK tank has called for an end to regulatory stress tests on banks, saying they are “sleep- walking” the sector into another financial crisis.

The Adam Smith Institute, a free market think tank, said the annual Bank of England tests – which are used to gauge the resilience of banks to volatile financials scenarios – gave false comfort to lenders because the rules were not rigorous enough.

It added the tests failed to apply a minimum ratio of capital to leverage for UK banks, which would have shown the banks to be weaker than when tested on risk weighted assets.

Read the full article here.

ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.

The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.

ASI report "No Stress" features in the Yorkshire Post

Adam Smith Institute report "No Stress: The flaws of the Bank of England's stress testing programme" has featured in the Yorkshire Post:

The Bank of England’s banking stress tests are highly unreliable and could be “worse than useless”, a report has warned.

Libertarian think-tank the Adam Smith Institute said the Bank’s assessment of how well funded institutions should be could provide “false comfort”.

Regular stress testing - checking banks and building societies have enough cash to weather market shocks - was introduced in 2014 as a way to assess the strength of the sector.

These tests are “fatally flawed” because they use a single scenario test with a low pass rate, the think-tank claimed.

Read the full article here.

ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.

The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.