Seven out of eight UK banks pass BoE stress tests, Co-op Bank fails

Seven out of eight of the UK’s largest banks and building societies have passed the Bank of England’s (BoE) latest round of stress tests, with the struggling Co-operative Bank being the only lender to have failed.

BoE governor Mark Carney said that the results show that “the core of the banking system is significantly more resilient”.

The results will come as welcome relief to some, especially Lloyds, following recent concerns that the bank would struggle to meet the requirements set out by the Prudential Regulation Authority (PRA).

The PRA was testing banks against their resilience to a very severe housing market shock and a sharp rise or snap-back in interest rates.

It required lenders to hold a minimum common-equity tier-1 (CET1) capital ratio of 4.5% in the most severe economic scenario.

HSBC held the highest capital buffer in the stress tests of 8.7%, followed by Santander UK (7.6%), Standard Chartered (7.1%), Barclays (7.0%), Nationwide (6.1%), Lloyds (5.0%) and RBS (4.6%).

The Co-operative Bank, however, achieved a CET1 of -2.6% in the stress scenario.

Nevertheless, all banks’ actual reported capital buffers were higher than 10% in their latest results.

Ewen Stevenson, the chief financial officer of RBS, which only narrowly passed the tests under the hypothetical adverse scenario, said in a statement: “We recognise that there is still much work to be done to improve the resilience of our balance sheet.”

“Overall, the Financial Policy Committee judged that the resilience of the system had improved significantly since the capital shortfall exercise in 2013,” the BoE said in a statement.

“Therefore, the FPC judged that no system-wide, macro-prudential actions were needed in response to the stress test.”