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The Financial Services Authority today revealed for the first time the economic disaster scenarios that it uses in its so-called stress tests on British banks and building societies.
While it repeated last week's refusal to follow the American lead in publishing the results of the tests bank-by-bank, the FSA did reveal that the parameters it was using to establish whether banks were financially strong enough.
The regulator is currently judging banks' solvency levels on their ability to withstand a cataclysmic 6% collapse in GDP from its peak to its trough, with zero growth in the economy until 2011 and no return to the longer term trend rate until 2012.
The model also factors in a horrific unemployment rate of more than 12% while house prices are to collapse 50% and commercial properties 60%.
Currently, unemployment here is 7.1% while house prices are generally thought to have fallen by between 20% and 25%.
Most economists predict that there will be a return to economic growth late this year or during 2010.
The figures were taken as being tougher test than the American version, which was particularly criticised for its relatively optimistic view of the worst case scenario for unemployment, which it had set at 10% - not far off the current level just shy of 9%.
"The stress tests used are not forecasts of what is likely to happen but deliberately designed to be severe," the FSA said in its statement.
The FSA notice came rising interest in stress testing around the world.
Last week, the FSA and the Treasury refused to publish stress test findings on individual banks after a Freedom of Information request from the media. Today it attempted to justify its decision saying it could not go public because, unlike in the US, the stress testing was an ongoing and repeated process, rather than a one-off.
Today's statement was viewed as a gesture towards openness from the FSA in the light of that.
It also followed recent news that an EU-wide stress testing exercise was under way to establish the financial strength of the area's banking system as a whole and its ability to withstand further shocks.
The next testing round will be complete in September. However, the results will not be published.
The FSA has been ramping up its use of stress tests to guide policy in several areas, particularly when it was deciding, with the Treasury and the Bank of England, how much taxpayer money should be used to bolster banks under the Credit Guarantee Scheme and Asset Protection Scheme.
They were used recently in the analysis of the Dunfermline Building Society, which identified potential threats to its strength.
Dunfermline was later bailed out by the Treasury and the Nationwide, which took on its healthier assets.
