BoE health checks result in an unhealthy diagnosis for top UK banks

BY Fraser Tennant

The Bank of England’s opportune health checks on the UK’s top banks has delivered a resoundingly unhealthy diagnosis for three of the financial institutions tested.

The central bank’s ‘Stress testing the UK banking system: 2014 results’ report reveals that the Royal Bank of Scotland (RBS) only just passed the test, Co-operative Bank failed the test, and Lloyds Banking Group was in such bad shape at the end of 2013 that it required a significant injection of capital.  

The report also highlights the fact that all three would not have possessed sufficient amounts of capital in 2013 to have been able to deal with severe a financial difficulties, should they have occurred.

During the testing process, RBS submitted a revised capital plan announcing its intention to raise £2bn ($3.13bn) in debt capital to help bolster its position.

The Co-operative Bank, the only financial institution tested to have completely failed, was requested by the central bank to submit a new capital plan, which was approved, designed to reduce its risky assets by £5.5bn by the end of 2018.

And Lloyds was able to raise enough capital in 2014 to be deemed out of danger.

“This was a demanding test," said the governor of the Bank of England, Mark J. Carney. “The results show 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."

The Bank of England’s health check tests were performed on the following: Co-Operative Bank, the Royal Bank of Scotland, Lloyds, Barclays, HSBC, Santander UK, Standard Chartered, and the Nationwide building society.  All bar the initial three were found to have no problems.

Coinciding with the results of the tests was the publication of the central bank’s Financial Stability Report, which gives a snapshot of the strength of the UK financial system. This report states that concerns over the global economy have risen, but suggests that “banks are in better shape to cope with any headwinds”.

Report: Stress testing the UK banking system: 2014 results


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