Shock treatment tests local banks' resilience

STRESS tests of Guernsey's banking and insurance sectors show they would not be immune from the effects of a significant macroeconomic shock.

In a scenario played out by the International Monetary Fund as part of its financial stability assessment of Guernsey, the IMF sought to find out how Guernsey would be impacted as a result of a macroeconomic shock in a major economy to which it is linked, such as the UK.

The result was that if a series of single shocks came together, three banks out of 19 would fall short of capital under a scenario of medium to high severity, while in all single-risk tests, only one bank would need recapitalisation.

It was also determined that Guernsey banks were most vulnerable with respect to credit risk resulting from parent claims and large exposures as well as foreign exchange rate risks.

• Read the full story in the Guernsey Press. See below for subscription details.