UK banks pass recession stress tests

UK banks have passed Bank of England (BoE) stress tests in order to prove that they have the financial strength to survive if another recession occurs.

The tests worked on the hypothetical basis that oil prices had dropped to $38 a barrel and the international economy’s strength had failed.

However, among the seven biggest national lenders, the weakest performers in the tests were Royal Bank of Scotland (RBS) and Standard Chartered.

The two aforementioned banks did not have enough capital strength to continue their operations if a recession took place, but they then managed to raise enough capital and so avoided having to generate a new contingency plan, which Co-Operative Bank was forced to do last year.

All banks have been informed that a new “countercyclical capital buffer” measure, which is being implemented by the BoE, will mean they also have to have capital in reserve which can be used to protect their UK exposures.

The move will see £10 billion being moved by the baking sector, to ensure that banks have enough cash to operate even if bad loans result in losses.

The gap that will be created is expected to be filled by a greater profits drive or the sale of shares and bonds.

Commenting on RBS’s result, Ewen Stevenson, the bank’s chief financial officer, said: “We are pleased with the progress we have made relative to the 2014 stress test, but recognise we still have much to do to restore RBS to be a strong and resilient bank for our customers.”