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* Test puts HSBC, Standard Chartered in the spotlight
* Co-op ditched from test after balance sheet shrinkage
* Test results due in December
* Banks will need clear pass to escape finding more capital (Adds reaction, share prices)
By Huw Jones and William Schomberg
LONDON, March 30 (Reuters) - Britain's seven biggest lenderswill have to show they can cope with a global economic slumptriggered by a sharp slowdown in China and a crash in the eurozone in this year's round of stress tests conducted by the Bankof England.
Britain decided to introduce annual stress tests for itsbanks after the 2007-09 financial crisis which requiredtaxpayers to pump 66 billion pounds ($98 billion) into RoyalBank of Scotland and Lloyds Banking Group.
"By assessing the resilience of the UK banking systemagainst a major external shock we will improve further ourability to identify vulnerabilities and we will ensure thatbanks have plans in place to address a wider range of possiblestresses," BoE Governor Mark Carney said on Monday.
The Bank also said the Co-operative Bank, which failed lastyear's tests and is deep in a restructuring programme, would notbe assessed as it is now too small.
That leaves six banks and one mutual lender to face thisyear's tests -- Barclays, HSBC, StandardChartered, RBS, Nationwide Building Society,Santander UK and Lloyds.
The global downturn scenario which the lenders will have toprove they could survive includes various financial shocks suchas a contraction of more than 2 percent in the euro zone economybut not a Greek exit.
It also sets out the prospect of a slowdown in economicgrowth in China to 1.7 percent of GDP by the end of this year,tipping Hong Kong into a deep recession. That would cause a 40percent slump in Hong Kong property prices, hitting some Britishlenders such as HSBC.
Commodities would also take a hit with the oil pricetroughing at $38 a barrel.
Last year's tests, in which the Co-op was the only one tofail, largely focused on a 35 percent crash in UK housing pricesamid concerns at the time that the British property market was in danger of overheating to the point of creating a bubble.
In the 2015 tests, the British house price fall has been setat 20 percent over the five-year scenario period, the BoE said.
The UK-specific focus last year caused some critics to sayHSBC and Standard Chartered got off lightly. Both banks alreadyface pressure from some investors to relocate many UK operationsto Asia after a jump in UK bank taxes.
HSBC, 40 percent of whose assets are in Asia on arisk-weighted basis, had no comment on Monday. StanChart, with59 percent of its risk-weighted loans in Asia, said it wouldexamine the details.
The results are due to be published in December. Shares inall those being tested were flat to higher after the news, inline with the London market's FTSE 100 index.
CLEAR PASS NEEDED
Under the tests banks will have to show they can maintain aTier 1 core capital adequacy ratio of 4.5 percent ofrisk-weighted assets after being exposed to the theoreticalshocks, the same pass mark as 2014.
Concerns among global policymakers about shrinking liquidityin markets have also shaped aspects of this year's tests, whichwere developed with the International Monetary Fund.
The BoE has pointed to a surge in U.S. Treasury bond priceslast October after economic data sparked a mass sell-off,raising questions about the ability of investors to sell evenvery liquid assets when they want to. Banks will also have toshow they can withstand several customers defaulting in Asia andelsewhere.
In this year's test banks will also have to show they canmaintain a Tier 1 capital leverage ratio of 3 percent, a measureof core capital as a percentage of total assets, notrisk-weighted, a new addition to the examinations.
The British Bankers' Association had no comment.
The seven lenders, which account for 70 percent of UKcorporate loans and 75 percent of UK mortgages, will also haveto show they can expand lending to the UK economy by 10 percentduring the test.
Where banks scrape a pass, they may still have to boosttheir capital levels or take other, unspecific action.
RBS and Lloyds were required to bolster their capitaldefences despite passing last year's tests.
The BoE is likely to consider including the UK arms offoreign banks in future stress tests.($1 = 0.6757 pounds) (Additional reporting by Steve Slater; Editing by Greg Mahlich)
