(Reuters) - Britain's Co-operative Bank is set to fail the Bank of England's stress test of eight leading lenders this month, The Times newspaper said on Monday.

The eight banks are being tested on their ability to withstand a theoretical 35 percent crash in house prices and surging unemployment and interest rates, with the central bank's Prudential Regulation Authority due to announce the results on Dec. 16.

The Co-op bank is thought to have acknowledged that it has insufficient buffers to withstand a very severe recession, in spite of building 1.9 billion pounds in extra capital in the past 12 months, the newspaper said.

The bank nearly collapsed last year and fell under the control of bondholders when a 1.5 billion pound capital shortfall was identified shortly after the collapse of its attempt to buy 631 branches from rival Lloyds.