Most UK banks pass stress tests

David Harvey our consultant managing the role

The Bank of England has revealed seven out of the eight biggest high street lenders passed its rigorous stress test.

Almost all the UK's main high street banks have passed the Bank of England stress tests, indicating they could keep on functioning fully even in a dire economic crisis.

The Bank's December Financial Stability Report indicated that five of the institutions - HSBC, Barclays, Santander, Standard Chartered and Nationwide - passed comfortably. The position was less clear-cut at Lloyds and the Royal Bank of Scotland (RBS), both of which only passed by a small margin. The Co-operative Bank was the one institution to fail.

With future stress tests to be applied to issues outside the scope of the current regime - like the risks from overseas markets - banks may need to take on more auditors to make sure they continue to pass stress tests.

The Co-operative Bank, which is currently working through its own detailed recovery plan, said it was not surprised that it did not pass the test at this stage, as it will take time to resolve balance sheet problems.

Speaking to the BBC, the man behind the tests, Andrew Bailey, said it would not be necessary for Lloyds or RBS to take fresh remedial measures.

He said: "We have to bear in mind the major tasks that both banks have had to rebuild their capital positions and their resilience from the depths of the crisis."

The checks carried out by the Bank of England were very rigorous, as the scenario against which the banks were being tested included a series of dire circumstances coming together all at once, such as unemployment reaching 12 per cent, house prices falling by 35 per cent and consumer prices index inflation soaring to 6.6 per cent, all situations that would be worse than anything that has happened since 2007.

As a result, the chances of the banks that encountered difficulties in meeting the requirements actually struggling to remain in business are fairly remote.

One reason for this is that even if there is a major economic downturn in a few years hence, by then the remedial action being taken by banks will have had more chance to take effect, thus ensuring they are in a more robust position.

11/04/16
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