Setting out its scenario for the 2015 stress test, the BoE said the UK banking system will be forced to ensure a slowing economy in China and weak growth in the Eurozone is included in its ability to withstand a severe shock to the UK economy.
Additional considerations include severe financial market stress with a reduction in global risk appetite, particularly in heavily indebted countries.
Banks will be required to ensure the risk-weighted capital is maintained above 4.5% of overall assets with tier 1 leverage ratio at 3%.
Banks and building societies participating in the 2015 stress test include Barclays, HSBC, Lloyds, Nationwide, RBS, Santander UK and Standard Chartered.
Last year RBS and Lloyds both failed stress tests, with the Co-operative Bank ordered to submit a new capital plan. The Bank of England adjusted its framework in 2014 to stress-test banks’ balance sheets to measure their ability to cope with a housing market shock.
The Co-operative Bank will be not be participating in this year’s stress test as it has a smaller balance sheet than in 2014 and is significantly smaller than the banks included, meaning it is unlikely to have a material impact on the resilience of the system, the BoE said.
Mark Carney, Governor of the Bank of England, said: “Last year’s stress 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,” he added.
The Bank of England said the results of the 2015 stress test would be published in December alongside its Financial Stability Report.