Last checked at 
(Repeats to add dropped codes)
By David Milliken and Huw Jones
LONDON, Dec 16 (Reuters) - Britain's state-backed lendersonly narrowly passed the Bank of England's debut annual stresstest, putting the prospects of Lloyds paying a dividendfor 2014 in the balance.
Lloyds and its British banking rival Royal Bank of Scotland on Tuesday scraped through a doomsday scenario ofplummeting house prices and soaring unemployment after both tookpre-emptive measures to shore up their capital.
The Co-operative Bank, which nearly collapsed last yearbefore being bailed out by bondholders, was the only bank tofail the test, which was tougher on lenders with high exposuresto British mortgages, such as RBS, Lloyds and Nationwide.
Britain pumped 66 billion pounds into Royal Bank of Scotlandand Lloyds Banking Group to keep them afloat during thefinancial crisis of 2007 to 2009, prompting a shake-up in theway banks are supervised.
The Bank of England's Financial Policy Committee, which istasked with dealing with potential risks to the economy from thebanking system, recommended that banks be tested regularly tocheck they have sufficient capital to withstand market shocks.
The Bank of England stress test added a number of additionallayers on top of those applied by European regulators in anEU-wide test of 123 banks in October.
***************************************************
http://graphics.thomsonreuters.com/14/uk-stress-test/index.html
***************************************************
Under the stress scenario, Royal Bank of Scotland's corecapital ratio fell to just 4.6 percent, a whisker shy of the 4.5percent minimum required, before actions it had taken this yearto strengthen its balance sheet were taken into account.
Lloyds' core capital ratio was 5.0 percent before itsactions were taken into account.
The Bank of England said on Tuesday it "would ordinarilyhave required RBS to submit a revised capital plan", but that itdeemed this unnecessary as Royal Bank of Scotland had announcedit would raise extra capital while the stress tests wereunderway.
Royal Bank of Scotland, which is 80 percent owned by thestate, said it needed to do more.
"We recognise that there is still much work to be done toimprove the resilience of our balance sheet," Chief ExecutiveRoss McEwan said in a statement.
The Bank of England's stressed scenario featured a slump inthe value of sterling and a build up of inflationary pressures,leading to a tightening of monetary policy and a rise ininterest rates to 4 percent from 0.5 percent currently.
Those factors would cause the country's economic output tofall by about 3.5 percent from the end of 2013 and theunemployment rate to almost double to 12 percent.
Britain's other large banks, HSBC, Standard Chartered,Santander UK and Barclays, scored comfortably in the test withpass rates of between 7 and 8.7 percent.
The Bank of England warned that a stress test focused onemerging market shocks -- which would affect HSBC andStandard Chartered more -- could come in future, andthe BoE said that in 2015 it would also assess banks' leverageratio as well as capital levels in future. (Additional reporting by Matt Scuffham and Steve Slater;Writing by Carmel Crimmins; Editing by Alexander Smith)
