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Co-op Bank fails Bank of England stress test Co-op Bank fails Bank of England stress tests
(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, and that the "growing confidence in the system is merited".
"This was a demanding test," he added. "The growing confidence in the system is merited". "This was a demanding test," he added.
Stress test scenarioStress test scenario
Eight UK banks and building societies faced the tests. HSBC, Barclays, Santander, Standard Chartered and Nationwide all passed the test. In the first test of its kind, eight UK banks and building societies were assessed by the Prudential Regulation Authority, which is a part of the Bank of England.
HSBC, Barclays, Santander, Standard Chartered and Nationwide all passed.
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 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 Bank emphasised that the scenario was "extreme", and was not likely to materialise.
'No surprise'
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 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". 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 Royal Bank of Scotland and Lloyds Banking Group - both of which were bailed out by the taxpayer during the financial crisis, were found to be in need of further strengthening.
But the Bank of England stopped short of requiring them to submit new plans, as both lenders are already taking action to reduce risks.
The Bank of England's stress tests built on similar health checks by the European Banking Authority (EBA) in October.
The EBA found that 24 European banks needed to shore up their finances.
Four UK banks were subjected to the EBA test: Royal Bank of Scotland, HSBC, Lloyds Banking Group and Barclays. They all passed.
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.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.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.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.Read Kamal's blog in full.