UK STRESS TESTS: Just One Bank Failed

The results of the UK's bank stress tests are now out.

The Co-operative Bank, Royal Bank of Scotland and Lloyds were all told that they need to strengthen their capital. The Co-op Bank also has to submit a new capital plan, meaning it failed the tests entirely.

The stress tests were widely considered to be more strict than the European ones that were conducted earlier this year. A one-third crash in house prices was part of the model.

Bank of England, Business Insider

A bank should keep its capital ratio (a common measure of how much more of a shock a bank can take) above 4.5% even during the worst part of the stress test. All but one bank (the Co-op) managed to do that, though RBS squeaked through with just 4.6%.

Overall, they Financial Policy Committee (FPC) that was in charge of the tests sounds pleased:

Overall, the FPC judged that the resilience of the system had improved significantly since the capital shortfall exercise in 2013. Moreover, the stress-test results and banks' capital plans, taken together, indicated that the banking system would have the capacity to maintain its core functions in a stress scenario. Therefore, the FPC judged that no system-wide, macroprudential actions were needed in response to the stress test.

Here's how the BoE's scenario was different to Europe's, according to Capital Economics:

Capital Economics