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LONDON (Alliance News) - The Bank of England said on Wednesday that while some UK banks showed capital inadequacies in its latest round of stress tests, those banks have plans to build further resilience, and the UK banking system can support the real economy in a severe stress scenario.
This tests introduced for the first time a systemic reference point, a threshold which takes into account the potential global consequences of a lender's collapse, in addition to its normal individual hurdles for each bank.
The Bank of England said Royal Bank of Scotland Group PLC, Barclays PLC and Standard Chartered PLC showed capital inadequacies based on their balance sheets as they stood at the end of 2015.
RBS failed to meet its individual common equity Tier 1 capital (CET1) or Tier 1 leverage hurdle rates, measures of its financial resilience, before additional Tier conversion. After the additional conversion, RBS still didn't meet its CET1 systemic reference point, or its Tier 1 leverage ratio hurdle. However, the Bank of England said that RBS already has updated its capital plan, which the central bank will continue to monitor.
Barclays failed to meet its CET1 systemic reference point before additional Tier 1 conversion, but the Bank of England said that in light of Barclays' already announced capital strengthening plans, it has not required the bank to submit a revised capital plan.
Standard Chartered met its hurdle rates and systemic reference points, but did not meet its Tier 1 minimum capital requirement. The Bank of England said in the light of steps Standard Chartered is already taking to strengthen its capital, it has not required the bank to revise its capital plans.
HSBC Holdings PLC, Lloyds Banking Group PLC, Nationwide Building Society and Santander UK did not reveal any capital inadequacies in the test.
The stress test simulated a 1.9% contraction in the global economy, including a sharp decline in Hong Kong and China. Domestically, the scenario modelled a 31% crash in UK house prices over a five-year period with commercial real estate plunging by 42%.
The test also required lenders to provide stressed projections of misconduct settlements and regulatory fines.
The Bank of England said that given the results it has decided that no "system-wide macro-prudential" actions on bank capital were required in response to the stress test.
By Adam Clark; adamclark@alliancenews.com
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