RBS fails BOE stress test, announces revised capital agenda

RBS fails BOE stress test due to is sensitivity to current conduct fines and regulatory changes to risk-weighted asset requirements.What about other banks?

30 November, AtoZForex The Royal Bank of Scotland (RBS) has failed the stress test from the Bank of England. RBS appeared as the poorest performer of the seven banks examined.

RBS fails BOE stress test

The BoE latest round of stress tests on the banking industry in the UK has indicated that RBS did not meet the required benchmarks. Following the results of the stress test on Wednesday, RBS has announced a revised capital agenda.

Moreover, RBS, Standard Chartered, and Barclays were the three banks, which failed to pass the extensive tests by the BoE from the perspective of capital adequacy. In addition, RBS freshly revised capital plan was subject to approval by the Bank of England’s Prudential Regulation Authority (PRA) on Tuesday. The PRA has approved the updated RBS capital agenda right before the bank found out it has failed the stress test by BoE.

Analysts say that RBS did not surpass the BoE test due to is sensitivity to current conduct fines and regulatory changes to risk-weighted asset requirements. Additionally, the risk profile of its book also has influenced the test results. The Chief Financial Officer at RBS, Ewen Stevenson, has commented on RBS BoE stress test results:

“We have taken further important steps in 2016 to enhance our capital strength, but we recognize that we have more to do to restore the bank’s stress resilience including resolving outstanding legacy issues.”

How did the other banks perform?

As RBS fails BOE stress testBarclays has passed its CET1 hurdle, yet the results signal it would need to convert its AT1 debt in order to reach its systemic reference point.

Meanwhile, Standard Chartered has passed all of the hurdle rate tests. However, it has failed to hit the Tier1 minimum capital requirement.

As for other lending institutions, such as Lloyds Banking Group, HSBC, Nationwide Building Society and Santander UK, they have passed all of the stress tests by BoE.

Stress tests breakdown

The tests by BoE were based on the banks’ balance sheets as of the end of the last year. This implies that they did not anyhow depend on the series of capital advancement actions taken during the current year.

Moreover, the recent stress tests’ results did not take into consideration the effects of Brexit. Yet, the report from BoE has stressed that this particular round of tests was the toughest so far. This year’s stress tests assumed Chinese GDP decreasing to -0.5 percent, annual global GDP growth dropping to -1.9 percent, the UK GDP sliding by 4.3 percent combined with 4.5 percent surge in the domestic unemployment rate.

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