Further stress-testing of UK banks will take place to ensure they can survive a 'double-dip' recession, insists the UK' s financial watchdog. The FSA said new tests would assess banks' ability to survive another 2.3% fall in GDP between now and the end of 2011. Further falls in property prices and 13% unemployment would also be assumed.

But the FSA added that stress test scenarios were intended to be much worse than was realistically expected.

Stress-testing was introduced following the financial crisis to ensure that banks were holding enough capital to allow them to continue operating through tough economic conditions.

Tests carried out in 2009 ensured that UK banks could withstand a peak-to-trough fall in GDP of 6.9%, a rise in unemployment to peak at 12.5%, and a total fall in residential property prices of 50%.

Now the FSA says changes in the state of the economy mean banks need to guard against a total fall in GDP of 8.1%, leading to total unemployment of 13.3%.

The new stress-test scenario is more positive on house prices though, modelling a fall of 23%.