The Royal Bank of Scotland (LON:RBS) has emerged as the biggest failure in the Bank of England’s annual stress test, which measures Britain’s seven biggest lenders against a potential global economic crash.
“The stress test demonstrates that RBS remains susceptible to financial and economic stress,” the Bank of England said. “Based on RBS’s own assessment of its resilience identified during the stress-testing process, RBS has already updated its capital plan to incorporate further capital strengthening actions and this revised plan has been accepted by the PRA board”
As the results were announced, the Bank of England warned of “challenging period of uncertainty around the domestic and global economic outlook”
These risks include high levels of debt, the property sector, uncertainty surrounding Brexit, and reduction in foreign investors.
RBS wasn’t the only UK lender to fail the test. Standard Chartered (LON:STAN) and Barclays (LON:BARC) also struggled on the toughest stress test yet, which was made up of “a very severe, synchronised UK and global economic recession, a congruent financial market shock and separate misconduct cost stress”.
Such potential scenarios on this BoE test included:
- UK house prices fall by 31%
- UK GDP falls by 4.3%
- UK unemployment rises to 9.5%
- Global GDP falls nearly 2%
- China enters recession with -0.5% growth
- US and eurozone GDP fall by 3%
- Oil drops to $20 a barrel
RBS, which is still 73% owned by the government, submitted a new plan to the Bank of England after running independent internal tests and finding its balance sheet would fall short.
RBS chief financial officer, Ewen Stevenson said: “We are committed to creating a stronger, simpler and safer bank for our customers and shareholders. We have 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.”