EBA stress test results: UK banks respond

Billy Ehrenberg
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It was a good day for UK banks yesterday as all of them passed the European Banking Authority’s stress tests (Source: Getty)

It was a good day for UK banks yesterday as all of them passed the European Banking Authority (EBA) stress tests.

The banks under scrutiny were Barclays, Lloyds, RBS and HSBC. The threshold for passing the test was a common equity tier one ratio of 5.5 per cent, a measure of the strength of their balance sheets.

A higher ratio is seen as key to resilience against possible market shocks.

The banks passed on two different measures: the EBA’s adverse stress scenario and the more stringent Bank of England Prudential Regulation Authority (PRA) methodology.

RBS said that its ratio was 6.7 per cent (PRA):

RBS's transitional Common Equity Tier 1 ("CET1") ratio under the modelled adverse scenario was 8.2 per cent under the EBA's published capital definitions and prescribed approach and 6.7 per cent under the PRA definition. This was 1.2 per cent above the post-stress minimum ratio requirement of 5.5 per cent used in this exercise.

The equivalent ratio under the EBA modelled adverse scenario on a 'fully loaded' Basel 3 basis is also 6.7 per cent.

Lloyds had a ratio of 6.2 per cent (PRA):

The Group welcomes this assessment of the resilience to adverse market developments and its contribution to the overall assessment of systemic risk in the EU financial system.

Barclays was slightly higher on 7.1 per cent.

Barclays notes the publication of stress test outcomes on 123 European banks by the European Banking Authority ("EBA") today. Barclays has passed the EBA EU-wide stress test with an estimated CRD IV Transitional Common Equity Tier 1 ("CET1") ratio, on a comparable basis to other EU banks, of 8.2 per cent under the EBA's adverse stress scenario. Barclays' estimated PRA Transitional CET1 ratio, under this scenario, was 7.1 per cent

HSBC had not released a statement at the time of writing.

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