LONDON: Britain’s four biggest lenders have passed the Bank of England’s stress tests, which are designed to show their ability to withstand a new economic crisis, the central bank said on Tuesday.
Barclays, HSBC, Royal Bank of Scotland (RBS) and Lloyds Banking Group (LBG), are strong enough to cope with a painful downturn that would see house prices plunge by 35 percent, inflation surge and unemployment soar, it said in a statement.
However, troubled smaller lender Co-operative Bank failed the tests, while the BoE also raised concerns about state-backed pair Lloyds and RBS—both of which narrowly passed the assessment.
“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,” said BoE governor Mark Carney.
The BoE’s stress tests come after a similar Europe-wide assessment in October was passed by a large majority of the region’s leading banks, including Barclays, HSBC, Lloyds and RBS.
The Bank of England’s tests, conducted by its Prudential Regulation Authority (PRA) division on a total of eight British banks and building societies, sought to assess their resilience to a very severe housing market shock and to a sharp rise or drop in interest rates.
The other banks which passed the BoE assessment are Standard Chartered, Santander UK, and Nationwide Building Society.
The tests found RBS and Lloyds would be susceptible to such a crisis—but improvements and changes to their plans this year meant only the Co-op Bank failed the assessment.
“Following the stress testing exercise, the PRA board judged that, as at end-2013, three of the eight participating banks [Co-operative Bank, Lloyds Banking Group and Royal Bank of Scotland] needed to strengthen their capital position further,” the central bank said.
“But, given continuing improvements to banks’ resilience over the course of 2014 and concrete plans to build capital further going forward, only one of these banks (Co-operative Bank) was required to submit a revised capital plan.”
The British government owns 80 percent of RBS and 25 percent of Lloyds. Both groups were bailed out at the height of the 2008 global financial crisis with billions of pounds of taxpayers’ cash.