By Jonathan Davies

The Co-operative Bank has failed a 'stress test' by the Bank of England which measured the ability of the UK's major lenders to cope with a financial crisis.

The rest of the banks passed the test, with part-state-owned banks Lloyds Banking Group and Royal Bank of Scotland (RBS) just scraping through. The Bank of England said the two banks would be at risk in the event of a "severe economic downturn".

HSBC, Barclays, Santander, Standard Chartered and Nationwide all passed the test.

The governor of the Bank of England Mark Carney said the results showed that the banking system is "significantly more resilient".

The tests created an "extreme" scenario where house prices fell by 35%, unemployment rose to 12%, sterling and share prices fell by 30% and inflation grew to 6.6%.

The Bank of England found that the Co-op Bank was the only one that needs a "revised capital plan", where it loses billions of pounds worth of dead loans.

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