UK banks struggle through Bank of England “stress test”

<p>The Co-operative Bank has failed a “stress test” set out by the Bank of England.</p>

A number of UK lenders would struggle against "severe economic downturn", according to a new "stress test" from the Bank of England.

The Co-operative Bank was the only financial institute to fail but there were concerns over whether Lloyds Banking Group and Royal Bank of Scotland should the country face another economic crisis. Other banks such as HSBC, Barclays, Santander, Standard Chartered and Nationwide all passed the series of assessment by the Bank.

Stress tests are used to look at how banks would cope with extreme financial issues. The Bank of England's scenarios included sterling falling by around 30 per cent, house prices dropping by 35 per cent, bank rate rises reaching 4.2 per cent, CPI inflation hitting 6.6 per cent, unemployment rising to almost 1.2 per cent, a 3.5 per cent drop in GDP and share prices declining by 30 per cent.

All banks were subjected to doomsday type scenarios with the Bank confirmed that these circumstances were "extreme" and were not likely to materialise.

Mark Carney, governor of the Bank of England, said: "This was a demanding test. The results show that the core of the banking system is significantly more resilient, that it has the strength to continue to serve the real economy even in a severe stress, and that the growing confidence in the system is merited."

Prior to the stress test, the chief executive of the Co-op Bank admitted it would not be a surprise if it failed the upcoming assessment. Niall Booker said that while the bank was much stronger than it was a year ago, disclosures to the market in August would mean that it would struggle to meet the "desired capital ratios" in the stress tests.

The Co-op has to be bailed out last year when it discovered a £1.5 billion hole in its balance sheet.

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