RBS fails Bank of England stress test
Royal Bank of Scotland (RBS) has failed a Bank of England (BoE) stress test on how it would cope with another financial crisis.
Two other banks – Barclays and Standard Chartered – also failed on some measures but do not have to submit revised capital raising plans.
The tests were put in place by BoE after UK taxpayers had to bail out the banks, such as RBS, in the financial crisis.
The latest test is its toughest. The scenario is worse than 2008 and involves “synchronised UK and global recession with associated shocks to financial market prices, and an independent stress of misconduct costs”.
Seven banks participated in the test. HSBC, Lloyds Banking Group, Nationwide and Santander UK “did not reveal capital inadequacies”.
BoE governor Mark Carney says because some banks have built up capital since the financial crisis, this has improved the banking system’s resilience.
However, BoE says RBS “remains susceptible to financial and economic stress” when taking into account misconduct costs it still faces after its actions during the financial crisis.
Ewen Stevenson, finance director at RBS, says it has taken “further important steps in 2016 to enhance our capital strength but we recognise that we have more to do to restore the bank’s stress resilience including resolving outstanding legacy issues”.
Carney says the stress test had strengthened the resilience of the UK’s financial system “and may prove valuable given the elevated likelihood that some UK-specific risks to financial stability could materialise”.
The results of BoE’s findings are in a 54-page report, which can be found here.
The BoE also shared a handy infographic on financial stability, shown below:
