Stress tests restricted to the largest UK retails banks says Bank of England
To the relief of the UK's smallest lenders and units of foreign investment banks, the Bank of England has limited the annual stress tests to just the largest UK retail banks, since they account for 80% of the country's lending; however, it stated that it may broaden the scope to include other financial firms such as asset managers. This year all banks will have to show that they still have a core capital buffer of 4.5% at the end of the test, but this hurdle is set to be around 6% next year.

LONDON (Reuters) - The Bank of England set out on Wednesday how it will revamp the way it tests the resilience of Britain's major banks to market and economic shocks. For story click on * Threshold: only banks with retail deposits of more than 50 billion pounds to be tested from 2016. The threshold means that banks representing 80 percent of lending to UK economy come within the scope of the tests. * Only the seven firms tested in 2015, RBS, Lloyds, Santander UK, HSBC, Standard Chartered and Nationwide building society will be tested in 2016. * From 2016 banks tested will be given a bespoke pass mark rather than facing common hurdle for all lenders. This year's pass mark is 4.5 percent of risk-weighted capital. The average pass mark in 2016 expected to be over 6 percent. * UK subsidiaries of foreign investment banks will not be included in annual UK stress tests for now. * Results of the annual test will be used by the BoE's Financial Policy Committee and Prudential Regulation Authority to set countercyclical capital buffer across all banks, and bespoke capital buffer for individual banks. * BoE to build up internal resources for sector-wide stress tests, at a date to be decided, of Britain's non-banking financial sector, such as asset managers, hedge funds, clearing houses, insurance companies, pension funds. * 2016: First annual cyclical bank stress test will be run, with scenario released in March and results in the fourth quarter. Cyclical test refers to exposure to global risks, domestic economy and markets. UK banks will face European Union bank stress test in same year. * Severity of cyclical test will be tougher during upswings in credit growth. * 2017: Annual cyclical bank stress test and biennial exploratory scenario test to run side by side. Exploratory test refers to testing banking exposures to structural changes in markets, such as long-term downswings in commodities, end of a currency peg. * 2018: Annual cyclical bank stress test only. * 2019: BoE expected to begin testing the ring-fenced units of Britain's major banks. (Reporting by Huw Jones and David Milliken)