But let's not be too cycnical. So now the Bank of England has been conducting another round of stress tests.
The Bank subjected seven major lenders to a hypothetical scenario that involved a dramatic slowdown in the Chinese economy, prolonged deflation, a reduction in interest rates to zero and a huge increase in costs for fines and legal bills of £40bn. The test found that profits would fall more than than they had done during the 2008 banking crisis – by £100bn by the low point of the hypothetical scenario in 2016 - but capital cushions remained strong enough to withstand the downturn while increasing credit to the economy by 10%.I have long-held reservations about these banking 'stress tests': they are rarely stressful enough; and technically, stress-tests should involve a scenario that is a shock to the system, not an ongoing pressure like 'prolonged deflation'. However, doing something like a stress test is better than doing nothing.
The BoE has reached some conclusions, the headline being rather
But there is a line-item detail that may, just may, cause them to act; namely the easy terms on which buy-to-let mortgages are available (once again).
While it did not take immediate action to cool this sector - where lending has risen 10% in the first nine months of the year - it said it was reviewing the lending criteria adopted by firms and stands “ready to take action.” It will also be watching the impact of the extra 3% stamp duty announced last week by George Osborne in his autumn statement.This might, then, be an actual British 'counter-cyclical prudential intervention'. Correct me if I am wrong, but I think that would be a first - the relatively new-fangled Prudential Regulation Authority hasn't really done anything at all along these lines as far as I know.
Of course, other countries act in this way from time to time as a matter of course, and were doing so before the crisis. Our 'PRA' is a belated effort to catch up a bit. Will they or won't they?