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RBS Fails Stress Test from The Bank of England

November 30, 2016

[Photo by Elliott Brown / Flickr]


The Royal Bank of Scotland (RBS) announced a revised capital plan on Wednesday following the announcement that it had failed the latest round of stress tests administered by the Bank of England (BOE).  Fact is, RBS was the poorest performer of the 7 lending institutions examined.


From a capital adequacy perspective, RBS, Barclays and Standard Chartered were the 3 banks which failed to surpass the complete set of hurdles tested by the Bank of England.


RBS' updated plan was approved by the Bank of England's Prudential Regulation Authority (PRA) on Tuesday evening ahead of Wednesday's announcement that the bank had failed to meet 2 of its key measures of financial strength – (i) the common equity Tier 1 (CET1) capital rate, and (ii) the Tier 1 leverage hurdle rate. Both calculate the buffers that banks keep for times of financial stress.


RBS' relative weakness was largely due to its sensitivity to ongoing conduct fines, impairments and regulatory changes to risk-weighted asset requirements. The risk profile of its book – more weighted towards the worse performing unsecured, corporate and globally exposed loans than the better-performing domestically focused secured loans – also affected its stress test performance.