Bank of England stress tests are flawed and mask major weaknesses in the banking system, claims an influential think-tank.
The Bank of England is accused of being 'asleep at the wheel again'
The UK is
heading for a worse financial crisis than 2008 and Britain's banks are
"in no fit state to withstand the storm", it has been warned.
A hard-hitting report by the Adam Smith Institute
said the Bank of England's stress tests were "like having a ship radar
system that cannot detect an iceberg".
The influential think-tank argued the flawed healthchecks masked the ability of British banks to cope with another major economic shock and accused the Bank of England of being "asleep at the wheel again".
The study highlighted 13 flaws in the stress test, which was compared to a "ridiculously easy exam with a ludicrously low pass rate".
It argued every single UK lender would currently fail "more rigorous" stress tests by the US Federal Reserve.
The research warned the UK is "sailing blindly into a second global financial crisis" and has called on the stress tests to be ditched, with decision-makers instead forced to be personally liable for risks.
The report's author, Kevin Dowd, professor of finance and economics at Durham University, said: "The purpose of the stress-testing programme should be to highlight the vulnerability of our banking system and the need to rebuild it.
"Instead, it has achieved the exact opposite, portraying a weak banking system as strong.
"This is like having a ship radar system that cannot detect an iceberg in plain view.
"As the EU banking system goes into a renewed crisis, the UK banking system is in no fit state to withstand the storm.
"Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than '07-'08.
"The Bank of England is asleep at the wheel again, and we will be back to beleaguered banksters begging for bailouts - and the taxpayer will be ripped off yet again, but bigger this time."
The findings comes after the Royal Bank Scotland performed poorly compared to other major British banks when the results of the European stress tests were revealed last week.
RBS's capital levels fell by 7.5% - the third biggest fall of the 51 banks tested.
Deutsche Bank's share price took a hit at the end of June when it was branded one of the world's riskiest banks by the International Monetary Fund.
There is also mounting concern over the state of the Italian banking sector.
The Bank of England said last month that "all our major banks and building societies passed last year's stress test which included losses twice those incurred during the global financial crisis".
The influential think-tank argued the flawed healthchecks masked the ability of British banks to cope with another major economic shock and accused the Bank of England of being "asleep at the wheel again".
The study highlighted 13 flaws in the stress test, which was compared to a "ridiculously easy exam with a ludicrously low pass rate".
It argued every single UK lender would currently fail "more rigorous" stress tests by the US Federal Reserve.
The research warned the UK is "sailing blindly into a second global financial crisis" and has called on the stress tests to be ditched, with decision-makers instead forced to be personally liable for risks.
The report's author, Kevin Dowd, professor of finance and economics at Durham University, said: "The purpose of the stress-testing programme should be to highlight the vulnerability of our banking system and the need to rebuild it.
"Instead, it has achieved the exact opposite, portraying a weak banking system as strong.
"This is like having a ship radar system that cannot detect an iceberg in plain view.
"As the EU banking system goes into a renewed crisis, the UK banking system is in no fit state to withstand the storm.
"Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than '07-'08.
"The Bank of England is asleep at the wheel again, and we will be back to beleaguered banksters begging for bailouts - and the taxpayer will be ripped off yet again, but bigger this time."
The findings comes after the Royal Bank Scotland performed poorly compared to other major British banks when the results of the European stress tests were revealed last week.
RBS's capital levels fell by 7.5% - the third biggest fall of the 51 banks tested.
Deutsche Bank's share price took a hit at the end of June when it was branded one of the world's riskiest banks by the International Monetary Fund.
There is also mounting concern over the state of the Italian banking sector.
The Bank of England said last month that "all our major banks and building societies passed last year's stress test which included losses twice those incurred during the global financial crisis".
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