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UK banks would survive another recession according to European Banking Authority

British banks could weather another recession like that of 2008 according to a new report published by the European Banking Authority.

The Royal Bank of Scotland which is 80% owned by the UK Government satisfied the health check as did Lloyds Banking Group, which is 25% owned by taxpayers, despite failing a stress test.

In a statement, Lloyds said: “The Group welcomes this assessment of the resilience to adverse market developments and its contribution to the overall assessment of systemic risk in the EU financial system.

“Our strong position reflects the steps taken by the group’s management over the last three years to return its balance sheet to a robust position, and we will continue to use this strong basis to help Britain prosper.”

Jeremy Masding, group chief executive of permanent tsb Group Holdings plc said: “The only issue that arose in these tests was in respect of the Adverse Stress Test scenario which the ECB itself acknowledges as “extreme” and which does not reflect a number of important factors, including the progress made by the bank over the past year or the existence of €400 million of Contingent Capital.

“Our Capital Plan for the ECB will demonstrate that we have already closed the gap identified at that time by over 80% and we are planning to raise capital from private investors to support both the maintenance of prudent capital buffers and profitable growth.”

A report by the European Central Bank, which excluded British firms, has also revealed that 25 banks are in poor financial health, and that 13 of those desperately need to strengthen their buffers against losses.

This indicates that 1 in 5 Eurozone banks may be unable to survive another major economic crisis.

If the failing companies are unable to raise more cash in the next nine months, they could be forced to shut down. The financial institutions affected are mainly based in Italy, Greece and Cyprus.

Vítor Constâncio, vice-president of the ECB said: “This unique and rigorous exercise is a major milestone in the preparation for the Single Supervisory Mechanism, which will become fully operational in November.

“This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector.

“By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth.”

The results of a more detailed stress test on British brands, performed by the Bank of England, are only expected on 16 December.

This was posted in Bdaily's Members' News section by Clare Burnett .