Financial Policy Committee (FPC) recommended that regular stress testing of the UK banking system should be developed to assess the system’s capital adequacy.
Under the co-ordination arrangements with the EBA, the UK variant test in 2014 will, in addition, assess the combined impact of: (i) the global macroeconomic and market elements of the common, EU-wide stress scenario; and (ii) the UK macroeconomic elements of the stress scenario designed by the Bank of England. The baseline macroeconomic scenario has been designed by the European Commission.
Co-op Bank fails Bank of England stress tests
The Co-operative Bank has failed a “stress test” by the Bank of England that assessed major UK lenders’ ability to withstand another financial crisis. A further two banks – Lloyds Banking Group and Royal Bank of Scotland – were found to be at risk in the event of a “severe economic downturn”. The Bank of England tested the lenders’ resilience to a 35% fall in house prices, and a 30% drop in the value of the pound, among other factors. Five major banks passed the test. The results show that the banking system is “significantly more resilient”, said Bank of England governor Mark Carney, and that the “growing confidence in the system is merited”. “This was a demanding test,” he added.