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Co-op Bank fails Bank of England stress test | Co-op Bank fails Bank of England stress test |
(35 minutes later) | |
The Co-operative Bank has failed a "stress test" by the Bank of England that assessed major UK lenders' ability to withstand another financial crisis. | The Co-operative Bank has failed a "stress test" by the Bank of England that assessed major UK lenders' ability to withstand another financial crisis. |
A further two banks - Lloyds Banking Group and Royal Bank of Scotland - were found to be at risk in the event of a "severe economic downturn". | A further two banks - Lloyds Banking Group and Royal Bank of Scotland - were found to be at risk in the event of a "severe economic downturn". |
The Bank of England tested the lenders' resilience to a 35% fall in house prices, and a 30% drop in the value of the pound, among other factors. | The Bank of England tested the lenders' resilience to a 35% fall in house prices, and a 30% drop in the value of the pound, among other factors. |
Five major banks passed the test. | Five major banks passed the test. |
The results show that the banking system is "significantly more resilient", said Bank of England governor Mark Carney. | The results show that the banking system is "significantly more resilient", said Bank of England governor Mark Carney. |
"This was a demanding test," he added. "The growing confidence in the system is merited". | |
Stress test scenario | |
Eight UK banks and building societies faced the tests. HSBC, Barclays, Santander, Standard Chartered and Nationwide all passed the test. | |
The doomsday scenario mapped out by the Bank of England included an unemployment rate of nearly 12%, inflation rising to more than 6%, and interest rates rising to 4.2%. | |
The Bank stressed that the scenario was "extreme". | |
The Co-operative Bank, which had to be rescued last year after a £1.5bn black hole was found in its balance sheet, was the only bank deemed to require a "revised capital plan". | |
The chief executive of Co-operative Bank, Niall Booker, said it was "no surprise" that the lender had not passed the test, but said the Bank was on track to "significantly reduce risk weighted assets". | |
Analysis: Kamal Ahmed, BBC Business Editor | |
The Bank of England has made it clear that its doomsday scenario is not something that it thinks is likely to happen at the moment. | |
It is an attempt to replicate the bad news piled upon bad news such as occurred in 2008. | |
And given that the present risks in the economy include a collapse in the oil price and possible deflation in the eurozone, some argue that the Bank is testing the wrong thing. | |
Read Kamal's blog in full. |