Mark Carney, the governor of the Bank of England (BoE), has said the results of today’s stress tests prove the new-found resilience at the core of the banking sector.
Seven banks and Nationwide building society were tested, with only one, Co-operative Bank, failing. The test scenario was considered especially harsh and included two years of losses totaling £13bn across the banks, before, hypothetically, the banks would return to making profit.
The stress test completes our capital framework by informing judgement about the appropriate size of capital buffers for individual firms and for the system as a whole. It is a major component of both our macro- and micro-prudential regimes. As a joint exercise between the Prudential Regulation Authority and Financial Policy Committee, it demonstrates the major synergies possible across the Bank of England. This was a demanding test.
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.
The BoE decided that three of the eight banks (Co-op, Lloyds, RBS) still had work to do to safeguard their positions further as of the end of 2013.
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.