Financial regulators acknowledged the possibility of unemployment rising by another 1.5 million and the average house price halving to only £93,000.
The grim scenario was revealed by the Financial Services Authority, which is in charge of regulating banks and making sure that they have sufficient strength. It revealed that it has been stress-testing banks, applying fictional scenarios to see how their balance sheets could cope with a deep, prolonged recession.
The depicted scenario, which also envisages the recession carrying on for at least another year and a half, was not a forecast of what was likely to happen, the FSA said. It was intended to test how banks would cope if confronted with the worst economic downturn since the Second World War.
The Times
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