Bank of England to test UK lenders' resilience to 35 pct fall in house prices

LONDON, April 29 (Reuters) - Britain's lenders will have to showthey hold enough capital to withstand a near 35 percent slump inhouse prices and a spike in interest rates to 4 percent, theBank of England said on Tuesday.

The BoE's Prudential Regulation Authority said eight ofBritain's biggest banks and building societies will have toundergo the so-called stress test, in some cases on top ofseparate European Union tests also announced on Tuesday.

The results of Britain's add-on test will be published afterthe EU test outcome has been made public in October but beforethe end of the year.

Banks will have to show they would still have a core capitalratio of equivalent to at least 4.5 percent of their riskweighted assets if hit by a slump in house prices and higherinterest rates.

"If a firm's capital ratio is projected to fall below the4.5 percent core equity Tier 1 ratio in the stress, there is astrong presumption that the Prudential Regulation Authority willrequire the firm to take action to strengthen its capitalposition," the BoE said in a statement.

A bank may even be required to take action to boost itscapital levels even if it ends the test at or above 4.5 percent.

The test of theoretical shocks will cover a three-yearperiod when interest rates would jump to nearly 4 percent andunemployment rise to 12 percent, the BoE said.

Sterling would lose nearly a third of its value in the firstyear of the test.

For Barclays, HSBC, Lloyds andRoyal Bank of Scotland the exercise will come on top ofa common "stress test" 124 leading European Union banks willundergo in coming months.

The remaining four UK banks being tested only by the BoE'sexercise are Co-operative Bank, Nationwide, Santander UK and Standard Chartered. (Reporting by Huw Jones, editing by David Milliken)