(MENAFN- AFP) Britain's four biggest lenders have passed the Bank of England's stress tests, which are designed to show their ability to withstand a new economic crisis, the central bank announced Tuesday.
Barclays, HSBC, Royal Bank of Scotland (RBS) and Lloyds Banking Group (LBG), are strong enough to cope with a painful downturn that would see house prices plunge by 35 percent, inflation surge and unemployment soar, the BoE said in a statement outlining its first public stress test on the sector.
However, troubled smaller lender Co-operative Bank failed the tests, and the BoE noted that the state-backed Lloyds and RBS both passed the assessment only narrowly.
The Co-op was meanwhile ordered to shore up its balance sheet by slashing its loan book by £5.5 billion ($8.6 billion, 6.9 billion euros) by the end of 2018.
In order to pass the test, the banks had to maintain a 4.5 percent ratio of capital to loan assets throughout a potential three-year economic crisis.
- 'More resilient' -
"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 BoE governor Mark Carney.
Britain's big four passed a similar Europe-wide assessment in October along with a large majority of the region's leading banks.
The Bank of England's tests, conducted by its Prudential Regulation Authority (PRA) division on a total of eight British banks and building societies, sought to assess their resilience to a very severe housing market shock and to a sharp rise or drop in interest rates.
The other banks that passed the BoE assessment are Standard Chartered, Santander UK and Nationwide Building Society.
RBS and Lloyds were deemed susceptible to such a crisis but they made sufficient improvements and changes to their plans this year to pass the assessment, while the scandal-hit Co-op Bank did not.
"Following the stress testing exercise, the PRA board judged that, as at end-2013, three of the eight participating banks (Co-operative Bank, Lloyds Banking Group and Royal Bank of Scotland) needed to strengthen their capital position further," the central bank said.
"But, given continuing improvements to banks' resilience over the course of 2014 and concrete plans to build capital further going forward, only one of these banks (Co-operative Bank) was required to submit a revised capital plan."
The British government owns 80 percent of RBS and 25 percent of Lloyds. Both groups were bailed out at the height of the 2008 global financial crisis with billions of pounds of taxpayers' cash.
The Co-op Bank had already flagged that it would be no surprise for it to fail the BoE assessment, as it was still undergoing a rebuilding process following its near-collapse last year.
It is the latest challenge for the Co-op Bank after a £1.5 billion hole was found in its balance sheet last year and it slipped out of the control of the wider Co-op group.
It is now majority-controlled by investors including US hedge funds.
The bank was already tarnished by scandal when former chairman Paul Flowers, a Methodist minister, admitted possession of illegal drugs.
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