James Moore: Are we sure that the banks really learnt their lesson last time round?

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The Independent Online

Outlook What if? That is the question the City's big banks and other institutions are supposed to be taking seriously in the wake of the financial crisis.

Former executives are fond of bleating that no one could have predicted events such as the closure of international money-markets that denied banks such as Northern Rock and HBOS their principal sources of funding in the run-up to the shock.

In the post-crisis world, that is supposed to have changed. Chief risk officers, in theory, have more clout. Stress tests mandated by regulators have been designed to force banks not only to think the unthinkable but to play out the effects of the unthinkable on their businesses and then to formulate plans to deal with it.

It is against that backdrop that the most recent minutes of the Bank of England's Financial Policy Committee (FPC) should disturb us. They suggest that even a very predictable event – such as a swift about-turn in interest rate policy – isn't being taken seriously enough in certain quarters.

Mercifully, it notes that the world's current nasties – Russia/Ukraine, volatility in China's exchange rate and some strains in the money markets – haven't so far bitten hard enough to hurt much.

However, just because markets have shrugged off all these issues up until now doesn't mean that it will always be that way. And who knows what new ones lurk around the corner.

The FPC seems perturbed that a lot of people are seeing only the sunlit uplands of the current economic and financial backdrop. The problem is that it's all got a little too easy. Too many banks, funds and other market players are busily making hay again. Clouds on the horizon? We'll worry about them later.

That the FPC has chosen to raise this issue suggests that parts of the City have learnt very little from what went on in the middle and latter parts of the past decade.

It is easy to forget that, despite the gaudy growth figures the Chancellor delighted in announcing during his Budget, the economy still remains on the life support of artificially low interest rates combined with billions of pounds worth of "quantitative easing". One body that should be alive to the danger is the FPC's sister, the rate-setting Monetary Policy Committee. In taking UK plc off life support, it will move only very carefully.

At least if it has that option open to it.

Banks are about to go through another round of stress tests to determine whether they can cope with a "coherent tail risk" – basically an unlikely but not impossible combination of events – such as a sharp rise in interest rates combined with a shock to a housing market that has been looking worryingly frothy.

They'll have to ask "what if" because the regulators will force them to. But it's not only the banks that we have to worry about and crises have a nasty habit of emerging from new and unexpected places.