The Co-operative Bank has failed an extreme new stress test, but the Bank of England is satisfied the UK’s banking system is now more robust than in the past.
- Co-operative Bank fails the Bank of England’s stress test
- Overall, the Bank is happy the UK’s financial system is more robust than in the past
- Student property investment is a popular diversification option due to its ability to withstand downturns
Following the news that some major high street banks have failed or marginally passed an economic downturn stress test, investors may be wary of where they place their money.
The Co-operative Bank failed the test which assessed lenders’ ability to withstand another financial crisis, while Lloyds Banking Group and Royal Bank of Scotland were judged to be at risk in the event of a “severe economic downturn”. Five major high street banks passed the test.
Criteria of the Bank of England’s test included a 35% fall in house prices, a 30% drop in the value of the pound, and an unemployment rise to 12%.
Overall, the results show that the UK’s financial system is “significantly more resilient”, said Bank of England governor Mark Carney. “This was a demanding test. The growing confidence in the system is merited,” he added.
The chief executive of Co-operative Bank, Niall Booker, said it was “no surprise” that the lender had not passed the test following last year’s £1.5 billion black hole and resultant rescue, but said the bank was now on track to “significantly reduce risk weighted assets”.
As the text was designed to represent an extreme economic downturn the results do show the UK’s banking system is significantly more robust than it was in 2007 and the following crash.
However, investors will always be seeking to diversify their portfolio by looking to reduce risk and invest in low correlated assets. Unlike savings in a collapsed bank, property will continue to offer both a capital value and the potential for a monthly income. Student property investment in particular proved to be very resilient during the most recent downturn.