16th December 2014
The Co-operative Bank has failed a Bank of England “stress test” designed to gauge lenders’ ability to survive another financial crisis.
Lloyds Banking Group and Royal Bank of Scotland were also found to be “susceptible to a severe economic downturn”, although the two banks, which were bailed out by the Government in 2008, are not being required to submit plans to improve their financial strength.
Five banks passed the test, which assesses lenders’ ability to withstand factors including a 35% drop in house prices, a 30% drop in sterling and a jump in unemployment.
Barclays, HSBC, Nationwide, Santander UK and Standard Chartered, were all deemed to be sufficiently strong.
Bank of England governor Mark Carney said the “demanding” tests show the UK’s banking system is “significantly more resilient” and “growing confidence in the system is merited”.
Deputy governor of the Bank of England, Andrew Bailey, said that Co-op’s new management have taken decisive action to stabilise the bank by reducing risk in its mortgage book.
The Co-op Bank has published details of a new plan to boost capital, that the Bank of England has signed off.
It will be scaling back a package of mortgages on its books to reduce the size of its balance sheet, but warned that it does not expect to be profitable until 2017 at the earliest.