RBS Tumbles After Failing BoE’s “Toughest Ever Stress Test”

While the term ‘stress test’ has been applied almost mockingly to European and US banks in an effort to create confidence for investors (because if the government sees risks ‘contained’ then why worry), this morning’s Bank of England stress test results highlighted “capital inadequacies” for three major UK banks. While Barclays and Standard Chartered fell short, it is taxpayer-owned Royal Bank of Scotland that is slumping on a need to cut costs, raise capital, and sell assets.

As Bloomberg reports, RBS has agreed to deepen cost cuts and sell additional assets to improve its resilience, the bank said in a separate statement.

Eight years after its 45.5 billion-pound ($56.6 billion) bailout from taxpayers, the Edinburgh-based lender still has work to do to bolster its financial strength. The test poses the latest setback in McEwan’s efforts to return the lender to profitability and full private ownership. The CEO has said he’ll unveil plans to further shrink the bank and reduce costs alongside full-year results next year.

 

“They have fallen short of the hurdles, and they have some more work to do,” Bank of England Deputy Governor Sam Woods said at a press conference in London. RBS’s new capital plan is “fully credible, the PRA board looked at that carefully and reached that conclusion as well. We’ll hold them to delivery.”

RBS is down over 12% from post-Trump euphoric highs, erasing all of the gains since the election

 

As Bloomberg reports, some “capital inadequacies” were revealed at two other banks, Barclays Plc and Standard Chartered Plc, though neither was required to submit a revised capital plan, the BOE’s Prudential Regulation Authority said on Wednesday.

 

So to sum up – 8 years after the financial crisis was ‘fixed’, with financial asset prices at record highs, 3 UK banks remain “undercapitalized,” but do not worry as The BOE’s Financial Policy Committee judged that no system-wide macroprudential action on bank capital was needed in response to the test.

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