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Co-op fails Bank of England “Stress Test”


The Co-op bank has failed a stress test conducted by the Bank of England (BoE). HSBC, Barclays, Santander, Standard Chartered and Nationwide all passed and Lloyds Banking Group and Royal Bank of Scotland were found to be at risk in the event of a "severe economic downturn".

The test was given by the Prudential Regulation Authority (PRA), which is part of the BoE. It was designed to test major UK banks and see if they would be able to withstand another financial crisis. Similar checks were conducted by the European Banking Authority (EBA) in October against European Organisations.

The test checked how the banks would cope if the sterling fell by 30%, house prices fell by 35%, unemployment rose to 12% and share prices fell by 30%, among other things. The governor of the BoE, Mark Carney, believes the results show that the banking system is “significantly more resilient” and that the “growing confidence in the system is merited”.

The Co-op bank has now devised a “revised capital plan”. Niall Booker, chief executive of the Co-op Bank, said:

"Given we are in the early stage of our plan, the original capital deficit and the nature of our assets, it is no surprise that we have not met the severe stress test hurdle today.

"Our revised plan, accepted by the regulator, will see us accelerate our strategy to significantly reduce risk weighted assets."

Andrea Leadsom, economic secretary to the Treasury, said:

"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."

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