By Max Colchester and Margot Patrick 

The Bank of England on Tuesday said all but one of the U.K.'s major banks passed a balance sheet health check.

The central bank's Prudential Regulation Authority put eight U.K. lenders through a hypothetical three-year economic collapse. To pass the test banks had to maintain a 4.5% ratio of capital to risk adjusted assets throughout the period.

Only one bank, the Co-operative Bank, needed to submit a revised plan to strengthen its balance sheet. Part state-owned Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC only narrowly passed the test. Both need to improve their capital positions but have already put in place plans to do so, the PRA said.

The stress test saw interest rates rise sharply to 4%, U.K. gross domestic product fall to 3.5% below its fourth-quarter 2013 level, unemployment peak at 12% and commercial real-estate prices slump 30%. The regulator had previously warned that if banks only just pass the test, they could still be required to take action to bolster their balance sheets.

The Co-operative Bank already flagged that it would probably fail the balance-sheet check. The PRA on Tuesday said that the Co-op registered a capital ratio of -2.6% after the test. The Co-op Bank is working through a restructuring plan agreed with the regulator following a bailout by bondholders and has agreed to further shrink its balance sheet in particular cutting its mortgage book, the PRA said. The bank will cut risk adjusted assets by GBP5.5 billion ($8.51 billion) by the end of 2018.

RBS, which passed with a capital ratio of 5.2%, would have normally been asked to submit a revised capital plan, the PRA said. However, the 80% state-owned lender already agreed a restructuring plan with the PRA this year so a new plan wasn't required. Lloyds, which passed with a ratio of 5.3%, is generating capital and so doesn't need to provide a new plan either. But it is unclear whether Lloyds would get approval from the regulator to restart its dividend payments.

The Bank of England said it "judged that the resilience of the system had improved significantly since the capital shortfall exercise in 2013." The regulator, however, raised questions about all the banks' ability to provide accurate data to feed into the test. All but one bank suffered from limitations in technology and the number of personnel working on the project.

The test stressed the eight biggest U.K. lenders including HSBC Holdings PLC, Barclays PLC, Royal Bank of Scotland Group PLC, Lloyds Banking Group PLC, Standard Chartered PLC, Nationwide Building Society and The Co-operative Bank.

The balance sheet check is likely to form the basis for annual U.K. bank stress test.

Write to Max Colchester at max.colchester@wsj.com and Margot Patrick at margot.patrick@wsj.com

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