The UK banking industry will have to prove it can endure a global economic slump in this year’s Bank of England stress tests.
The Bank has set out the parameters of this year’s stress test, which include a collapse in economic growth in China and a sharp downturn in the eurozone.
The test imagines a sharp contraction in eurozone economic growth and Chinese expansion of just 1.7%.
China’s economy expanded by 7.4% in 2014 – the slowest pace for 24 years.
Economic growth of just 1.7% would plunge Hong Kong into a deep recession that would cause house prices on the island to collapse by 40%, hitting UK lenders such as HSBC.
Bank and building societies will also have to prove they have the capital resources to withstand a 2% fall in economic output in the eurozone.
In addition the stress tests imagine a scenario in which the UK economy contracts by 2.3%.
