Bank Of England Reveals New Lender Stress Test

The UK's biggest banks will have to show how they would cope with a 1930s-style global economic slump under a new doomsday scenario.

The second annual stress test of the financial system set by the Bank of England (BoE) aims to act as a health check on Britain's seven biggest lenders.

This year's test will focus on international risks rather than the most recent assessment in December, which had a more domestic focus.

It includes a dramatic slump in Chinese growth and a eurozone recession.

The test will assess the impact on the banks' balance sheets and resilience in the face of severe economic stress.

The lenders to come under the spotlight are Standard Chartered, HSBC, Barclays, Lloyds, Nationwide, Royal Bank of Scotland, and Santander UK.

The Co-operative Bank, which failed last year's test and has been taking remedial steps by speeding up the sale of its loan book, will not be included.

The BoE said the Co-operative is now smaller and its status was unlikely to have a "material impact on the resilience of the financial system".

BoE Governor Mark Carney said: "Last year's tests demonstrated how much stronger the core of the UK financial system has become since the financial crisis.

"The results showed that the post-crisis reforms have put the UK banking system on a stronger footing and made it better able to support the real economy even in the face of a major domestic shock.

"This year's test will have a different focus and is equally important.

"By assessing the resilience of the UK banking system against a major external shock, we will improve further our ability to identify vulnerabilities and we will ensure that banks have plans in place to address a wider range of possible stresses."

Those lenders found not to have a big enough capital to loan margin will be required to bolster their financial position.

Results of the stress test will be published in December.

The Bank stressed the scenario it set out was not a forecast of expected conditions in the UK or other markets.

While only the Co-op failed last year's test, concerns were also raised about state-backed Lloyds and RBS.

However, improvements and changes to their plans during 2014 meant they passed the check-up.