BoE says banks nervous over releasing details of health checks

By Huw Jones

LONDON, May 19 (Reuters) - Banks in Britain broadly supportBank of England plans for yearly checks on their capital levels,although they disagree on how detailed the published resultsshould be.

Eight of Britain's biggest banks, including Barclays, RBS, Lloyds and HSBC, willundergo a health check this year to see if they hold enoughcapital to withstand a 35 percent slump in house prices and aspike in interest rates to 4 percent.

This year's exercise begins what will become an annual test.It will be expanded to include other banks, to see if they canwithstand market shocks without taxpayer money.

The BoE published on Monday a summary of the results of aconsultation last year on how the stress test could be developedin the medium term. Responses to that consultation led thecentral bank to tweak this year's test.

"There was broad support for including major UK banks andsignificant UK subsidiaries of global systemically importantbanks in the framework," the BoE said.

There was also support for including medium-sized banks, iftheir test is less comprehensive, and for testing clearinghouses, whose role is set to become more important.

Clearing houses are third parties who guarantee trades suchas financial derivatives. Regulators want more of the market tobe cleared, to increase transparency and safety.

The Bank said that among the 23 responses, views differedover how detailed the published results should be.

"Some felt that bank specific results should not bedisclosed under any circumstances, while others saw this asessential for the credibility of the framework," the summarysaid.

The BoE had proposed that the banks not only face a commontest but also have their own "bespoke" test bolted on. That testwill focus on particular parts of the bank, such as exposures toemerging markets.

This bespoke test would be expected to result in higherlosses, a principle questioned by many respondents, who said itamounted to banks pre-judging the outcome of the test. A bespokeelement was not included in this year's test, contrary to someexpectations.

The Bank said the responses led it to increase internationalcoordination of bank health checks by aligning this year's testmore closely with a pan-European Union health check of toplenders, four of which are from Britain.

It has also given greater clarity on this year's thresholdsfor passing the test as respondents wanted. The central bankwill publish another paper setting out how it will develop thestress test of lenders beyond this year. (Reporting by Huw Jones; Editing by larry King)