The Bank of England has said that all seven of Britain’s biggest banks are strong enough to survive another major recession, although Royal Bank of Scotland and Standard Chartered were close to failing the annual stress tests (1).
In this year’s fictional scenario, it was assumed that oil had fallen to $38 a barrel and that the global economy had slumped. RBS and Standard Chartered were found not to have enough capital strength, but both took steps to raise capital, so were not asked to come up with a new plan, as Co-Operative Bank was last year (2). HSBC, Barclays, Lloyds, Nationwide Building Society and Santander UK passed the test more comfortably.
The tests were based on RBS’ finances at the end of 2014. Since then, the bank has managed to sustain its balance sheet enough to satisfy the Bank of England; as a result it won’t be ordering RBS to take further action. The same goes for Standard Chartered, which is taking action including a $5.1bn rights issue, designed to build up the capital buffer (1).
Governor of the Bank of England, Mark Carney, said: “The stress test results, taken together with banks’ capital plans, indicate that the UK banking system would have the capacity to lend to the real economy even under such a severe scenario” (3).
Next year’s stress test will examine the state of the UK economy and the financial market cycle, and the following year’s test is expected to focus on the impact of a hypothetical crash in the US economy (1).