The stress tests were the first that have been undertaken concurrently on eight UK banks and building societies - Barclays Bank, Co-operative Bank, HSBC Bank, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland, Santander UK and Standard Chartered.
The tests, designed to see whether the bank's capital reserves would withstand a major economic downturn, have meant that Co-op has been asked to resubmit a revised capital plan.
Amongst those banks who 'scraped' through were RBS and Lloyds, which the Bank of England called 'susceptible to a severe economic downturn'. It noted that, for RBS, the analysis highlighted risk that 'may stem from the Group's retail and corporate lending portfolio.
Five banks - Barclays, HSBC, Nationwide, Santander UK and Standard Chartered - showed no capital inadequacies. On the whole, the stress-test results and banks’ capital plans indicated that the banking system would 'have the capacity to maintain its core functions in a stress scenario'. Therefore, the FPC judged that no' system-wide, macroprudential actions were needed' in response to the stress test.
Mark Carney, Governor of the Bank of England, said:
“The stress test completes our capital framework by informing judgments about the appropriate size of capital buffers for individual firms and for the system as a whole. It is a major component of both our macro- and micro-prudential regimes. As a joint exercise between the PRA and FPC, it demonstrates the major synergies possible across the Bank of England. 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.”
Andrea Leadsom, economic secretary to the Treasury, says:
"Ensuring banks’ balance sheets are strong enough to weather future financial storms is a key part of this plan, which is why we welcome today’s stress test results. These new, tougher tests are a central part of our radical banking reforms and show that the system we put in place is working.”
John Lunn, Executive Director and Partner at transformation consultancy Moorehouse, commented:
"This morning’s reports published by the Bank of England on financial stability, systemic risks and UK stress test provide encouraging steps forward in rebuilding confidence in the UK’s financial systems. Whilst some banks, notably the Co-operative Bank, still have a lot to do to ensure they have sufficient resilience in both systems and capital ratios, the upward trend identified by the Bank of England should give the sector reassurance it will be able to handle a sudden shock much better than in 2008.
"However, as the sector continues to rebuild its underpinning foundations, the warning by the Bank of England that rebuilding confidence requires more than focussing on financial resilience is in our view the most important finding. As the industry grapples with Darwinian transformations to the standard operating models, UK banks that are better able to focus both on ensuring operational resilience and innovation through delivering a better customer experience will be the overall winners post the banking crisis."
