Three of the eight major British banks failed a stress test administered by the Bank of England, the central bank said Tuesday. However, the review also found that the resilience of the banking system overall has improved over the past year.
The first concurrent stress testing exercise of the UK banking system, which looked at the capital positions of eight major banks — Barclays Bank, Co-operative Bank, HSBC Bank, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland, Santander UK and Standard Chartered — found “substantial variation” across the banks in the stress scenario it tested. The Bank of England reports that the capital positions of five of the eight banks were given a clean bill of health by the country’s prudential regulator, the Prudential Regulation Authority (PRA). This includes Barclays, HSBC, Nationwide, Santander UK and Standard Chartered.
The review found that the other three (Co-operative Bank, Lloyds Banking Group and Royal Bank of Scotland) needed to strengthen their capital positions. However, the bank reports that “given continuing improvements to banks’ resilience over the course of 2014 and concrete plans to build capital further”, only one of these banks (Co-operative Bank) was required to submit a revised capital plan.
Regulators noted that only one bank fell below the minimum capital threshold at the trough of the stress scenario, and that the capitalization of the system overall had improved further over the course of the past year. They found that the resilience of the UK banking system “had improved significantly since the capital shortfall exercise in 2013.”
And, given the banks’ plans to boost capital, it concluded that the banking system “would have the capacity to maintain its core functions in a stress scenario”; and that, therefore, no system-wide actions to ensure stability were needed in response to the stress test.
“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,” said Mark Carney, governor of the Bank of England.