THE health of UK banks is being tested against their ability to withstand the worst recession since the Second World War, City watchdog the Financial Services Authority said today.

The FSA has published details of the gloomy scenarios used to assess banks' loan books and capital strength.

It is testing against a fall in overall GDP of more than six per cent - with the UK remaining in recession until 2011 and unemployment hitting 12 per cent - as well as a 50 per cent peak-to-trough fall in house prices and a 60 per cent fall in commercial property prices.

The FSA stresses that the scenarios are not forecasts of what will happen in reality.

The tests were used on banks such as Royal Bank of Scotland and Lloyds Banking Group, which were applying to dump `toxic' assets in the government's taxpayer-backed insurance scheme, and the Dunfermline Building Society, which collapsed in March.

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