Bank of England Reveals UK Stress Test Results | Prepaid365

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16 December 2014

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The Bank of England has unveiled the results of its first stress testing exercise on the UK banking system, with a mixed batch of results.

The eight major UK banks and building societies were studied, with the test specifically designed to assess resilience to a sudden housing market change or a rapid interest rate rise or fall.

It is important to stress that the tests do not represent a scenario that the Bank expects to occur, merely one of what would occur in a severe risk situation.

The banks tested included Barclays Bank, Co-Operative Bank, HSBC Bank, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland, Santander UK and Standard Chartered.

Alongside the publication of the stress tests, the Bank of England also revealed its Financial Stability Report – compiled by the Financial Policy Committee (FPC) and looking at the outlook for the financial sector.

A Systematic Risk Survey which tracks perceptions of risk in the sector was also published, showcasing how banks and building societies view their current position.

Variation across the banks involved

Substantial variation was recorded across the eight banks and building societies and the Prudential Regulation Authority (PRA) said five banks did not reveal capital inadequacies.

That was based on their balance sheets at the end of 2013 and the PRA deemed there was no need for these banks to submit revised capital plans. Three of the eight banks were found to need to strengthen their position further; namely Co-operative Bank, Lloyds Banking Group and Royal Bank of Scotland.

The latter two are part funded by the state and, given improvements noted during 2014, they were not asked to offer a revised capital plan.

However, the Co-operative Bank was found by the PRA board to be in a difficult position at the end of 2013 with a new capital plan required.

Banks more resilient

This meant the bank was the only one to fall below the 4.5% threshold at the base of the stress scenario. As this was the only bank to do so, the FPC deemed that the UK banking system as a whole had actually become more resilient during 2014.

It also suggested that the stress test results and the banks’ capital plans meant that they would be able to maintain their core functions should they face a stress scenario.

As a result of this, the FPC decided that no system-wide actions were needed following the stress tests.

It is now thought that the Bank of England will look to develop its stress testing framework further for use throughout 2015.

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