RBS and Lloyds scrape through BoE stress tests as Co-op fails
Royal Bank of Scotland (RBS) and Lloyds Banking Group scraped through the Bank of England’s stress tests with only Co-op of the eight institutions under scrutiny failing to meet the capital requirements.
Although RBS and Lloyds were deemed ‘susceptible to a severe economic downturn’, based on their balance sheets at the end of 2013, the BoE recognised that both firms have ‘concrete plans to build capital’ and did not require them to take additional action.
Only the Co-op has been required to accelerate its reduction in risk weighted assets and the company told the stock market this morning that the ongoing restructuring and disposal of non-core assets means it ‘does not expect to be profitable in 2014, 2015 and 2016’.
The BoE’s stress tests were designed to scrutinise the resilience of the country’s eight largest banks in the face of a range of tail risks, including unemployment surging to 12%, house prices falling by a third and the base rate rising to 4%.
The test found RBS’s core capital ratio fell to 4.6%, just above the 4.5% threshold, with Lloyds at 5% and the Co-op -2.6%. Of the other banks, HSBC proved the strongest at 8.7%, followed by Santander at 7.6%, Standard Chartered at 7.1% and Barclays at 7%. Nationwide Building Society’s core capital fell to 6.1%.
Bank of England governor Mark Carney said: ‘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.’
Source: citywireuk – RBS and Lloyds scrape through BoE stress tests as Co-op fails
