Co-operative Bank fails UK stress test as RBS and Lloyds barely pass
Co-Operative Bank plans to cut £5.5 billion of assets to boost capital after failing assessment, while RBS and Lloyds score a bare pass
Co-Operative Bank failed the Bank of England's first public stress test of the country's lenders as Royal Bank of Scotland Group and Lloyds Banking Group barely passed.
Co-Operative Bank said it planned to cut a further £5.5 billion (HK$66.9 billion) of assets by 2018, while RBS plans to sell £2 billion of notes to bolster capital. None of the banks said it would have to sell new stock.
The regulator, which assumed the role of British bank supervisor last year, is following its US and European counterparts in using a stress test to try to revive investor confidence in lenders. Six years after the financial crisis, shares of four of Britain's five largest banks trade for less than their book value - or total assets.
"This was a demanding test," Bank of England governor Mark Carney said. "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."
Britain's eight biggest banks were probed on their resilience to shocks including a jump in the jobless rate to 12 per cent, a rise in the central bank's benchmark interest rate to 4 per cent and house prices falling by a third.
The stress test reduced RBS' core capital ratio to 4.6 per cent, based on data at the end of 2013, just above the 4.5 per cent pass threshold. Capital at Lloyds came in at 5 per cent, while Co-Operative Bank failed the assessment, ending up at minus 2.6 per cent.
"The market wasn't expecting any other bank to fail, so this shouldn't have a big impact on share prices today," said Gary Greenwood, an analyst at Shore Capital Group.