RBS 'making progress'
Banks pass test of surviving financial crash
RBS: initially failed test, but has increased capital (photo by Terry Murden)
Britain’s biggest banks have passed the latest tests on their ability to cope with another jolt to the financial system.
All six banks and one building society tested were told they had no need to strengthen their capital position, although Royal Bank of Scotland and Barclays initially failed on the amount of capital they held at the start of 2017.
However, they do not need to raise extra capital now as they have increased capital during the course of the year.
The Bank of England pointed out that it is the first time since it began stress-testing banks in 2014 that all UK lenders have passed.
The test imagines a scenario in which house prices fall by 33%, interest rates rise from 0.5% to 4% within two years and unemployment jumps from 4.3% to 9.5%.
The Bank said: “The 2017 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices and a separate stress of misconduct costs.”
It added that the UK’s banks could cope with a “disorderly” Brexit without needing to curb lending or be bailed out by taxpayers.
The Bank’s Financial Policy Committee said in its Financial Stability Report: “The FPC judges the UK banking system could continue to support the real economy through a disorderly Brexit.”
The banks had to show they had sufficient resources in place to cope with any shocks.
Last year, RBS had to bolster its finances by about £2 billion after failing the last stress test. RBS has not been required to submit a revised capital plan this time.
Commenting on the results, Ewen Stevenson, chief financial officer at RBS, said: “We continue to make progress towards the stress resilient bank we aspire to be.
“2017 represented another year of material improvement with our peak-to-trough stress resilience improving by 300bps from last year’s stress test.
“Until we have resolved our remaining major legacy conduct issues and non-core portfolio interests, we will continue to show stress test results weaker than our long term targets.”
The banks and one building society tested were: Barclays, Lloyds Banking Group, HSBC, Standard Chartered, Nationwide Building Society, Royal Bank of Scotland and the UK arm of the Spanish bank Santander.
Michael Snapes, financial services director at PwC, said the results of the tests mark a key turning point for the banks.
“As Brexit uncertainty persists and UK growth projections are adjusted downwards, there is some comfort to be had in the knowledge that the UK banking system is strong enough to withstand a severe economic deterioration,” he said.
“Indeed, with an end seemingly in sight for legacy conduct costs and restructuring programmes typically well advanced, the results suggest that the major UK banks may finally be emerging fully from their post-crisis downturn.”