Edinburgh based RBS bank, who were one of the banks responsible for the massive mis-selling of payment protection insurance has failed all six stress tests, created and held by the Bank Of England, which will mean that the Scottish banking giant will need to slash and cut costs to the tune of £2 billion in order to safeguard it’s future.
The stress tests are designed to see whether the UK’s banks have the ability to cope and overcome with situations and difficulties mirroring the 2008 financial crisis. Barclays and Standard Chartered also failed certain tests – but these two banks were noted by the Bank of England, as having already taken certain measures in order to deal with these potential scenarios.
The Bank Of England Stress Test Broken Down
- UK house prices fall by 31%
- UK GDP falls by 4.3%
- UK unemployment rises to 9.5%
- Global GDP falls to -2%
- China enters recession with -0.5% growth
- US and eurozone GDP fall by 3%
- Oil drops to $20 a barrel
RBS submitted the new plan to the Bank after running its own internal tests and finding its balance sheet would fall short.
The bank said the test applied a hypothetical adverse scenario to the group’s balance sheet as at 31 December 2015, and that it had taken a number of actions since then, including the ongoing run down of “risk-weighted assets”.
And it said it had continued its reduction in “higher-risk credit portfolios”, and reached settlements with regard to various litigation cases and regulatory investigations.
Bank Of England Governor Weighs In
The Bank Of England Governor Mark Carney told the BBC
“There were three of the institutions who could see the direction of travel and took actions of their own accord.”
Mr Carney added the tests showed the banks would still be able to lend to households and businesses, despite the “very severe shock”.