Co-op fails banking stress test

The Co-operative Bank has failed a Bank of England test which aimed to work out how well banks could withstand a financial crisis.

Eight banks were tested, with five passing, and a further two – RBS and Lloyds – scraping through the test but found to be at risk.

Banks needed to be able to withstand these conditions:

  • Sterling falls by about 30%
  • House prices fall by 35%
  • Bank rate rises to 4.2%
  • CPI inflation peaks at 6.6%
  • Unemployment rises to nearly 12%
  • GDP falls by 3.5%
  • Share prices fall by 30%

The Co-op Bank was bailed out to the tune of £1.5bn last year after hundreds of customers moved their accounts to another bank and it is likely to need significant restructuring to enable it to pass the test in future. The stress test is currently scheduled every two years, but BoE governor Mark Carney is considering carrying it out every year.

“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,” he said.

The Co-op Bank said it wasn’t surprised it failed the test, however CEO Niall Booker said the bank was in line to ”significantly reduce risk-weighted assets”.

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