Newspaper article International New York Times

3 Lenders in Britain Show Signs of Weakness ; Bank of England Finds Insufficient Capital to Ride out a Hypothetical Storm

Newspaper article International New York Times

3 Lenders in Britain Show Signs of Weakness ; Bank of England Finds Insufficient Capital to Ride out a Hypothetical Storm

Article excerpt

The Royal Bank of Scotland, Lloyds and the Co-operative Bank would not have had sufficient capital to comfortably weather a sharp financial downturn.

The results from the Bank of England's latest health check on Britain's top banks are in, with one bank failing, one coming razor close to failing and a third looking bad enough at the end of 2013 to warrant significant fund-raising.

The central bank said on Tuesday that the Royal Bank of Scotland, the Lloyds Banking Group and the Co-operative Bank would not have had sufficient capital in 2013 to comfortably weather its hypothetical financial storm, although it added that Lloyds had raised enough capital this year to be considered out of danger.

The Royal Bank of Scotland, which barely passed the test, submitted a revised capital plan during the process announcing its intention to raise 2 billion pounds, or about $3.13 billion, in debt capital that can convert to equity to bolster its position.

Only the Co-operative Bank failed the test, as was widely expected. The bank was required to submit to the Bank of England a new capital plan, which was approved. Under that plan, it will reduce its risky assets by Pounds 5.5 billion by the end of 2018.

"This was a demanding test," the governor of the Bank of England, Mark J. Carney, said in a statement. "The results show 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."

The stress tests were published at the same time as the bank's semiannual Financial Stability Report, which provides an overview of the strength of the financial system. In the report, the bank said the global economic outlook has worsened since its first-half review, and concerns about geopolitical risk and weak growth have risen.

Mr. Carney said the most important risks to global stability were international, noting that while the decline in oil prices should help the British economy, it could pose risks to financial stability. …

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