The bad news keeps coming for Manchester’s Co-op as this morning the Bank of England announced that it had failed its stress test.

The test, designed to examine how banks will perform in the event of another economic crisis such as the 2008 bank meltdown, shows that the Co-op has insufficient capital to cope with the most severe economic shock.

The bank fell into trouble last year after a £1.5bn black hole was found in its balance sheet following the collapse of its attempt to buy six hundred Lloyds Bank branches and was followed by embarrassing revelations surrounding its former non executive chairman Paul Flowers.

The bank is now owned by a group of hedge fund managers who have injected new funds into the business and begun selling off some of its assets including its farming and pharmaceutical businesses.

This morning’s news will almost certainly lead to a further selling off of its assets which may include a sell off of branches and a slimming down of its current business while cutting its loan book by £5.5 billion.

The Bank of England found that a severe downturn with house prices plunging 35% would wipe out the Co-op’s capital because of the effect on its risky commercial property and sub-prime home loans.

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