Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Banks, Financial

Banking app targets millennials who want help budgeting

Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday. For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling […]

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Categorized | Banks

BoE stress tests: all you need to know

Posted on November 30, 2016

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning.

Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession of 1.9 per cent of GDP and a more than 30 per cent fall in UK house prices over five years.

Here are the key takeaways:

  • RBS is the biggest loser: the state-controlled bank emerged bottom of the pile, suffering the second-highest ever percentage fall in capital under the stressed scenario after the Co-operative Bank in 2014
  • Capital plans: RBS’s failure means it has now presented regulators with a plan to cut costs and sell-off some of its assets to address its capital shortfalls. Responding to the results, RBS said it would take an “array of capital management actions” which would amount to at least £2bn
  • Better than previous years: This year’s stress tests were the toughest ever conducted by the BoE and overall, lenders emerged with stronger balance sheets and higher overall capital levels to withstand major economic shocks.
  • Barclays and StanChart: These were the two other big lenders who failed to meet some of the BoE’s minimum hurdles, but, unlike RBS, were judged to have had sufficient capital-lifting plans in place
  • Financial stability: releasing its latest outlook on financial stability, the BoE warned of “existing vulnerabilities” in the financial system, which have been compounded by the US election and Britain’s vote to leave the EU.
  • Carney praise: Speaking on Wednesday, governor of the BoE Mark Carney praised banks for their “greater balance sheet resilience” and said the domestic banking system was well placed to keep providing households with credit in times of economic stress
  • Brexit warning: Mr Carney also praised the results in light of the UK’s Brexit vote. This resilience “may prove valuable” in light of the prospect of a “UK specific risk to financial stability” materialising, said the governor
  • Italian banks: ahead of a key referendum in Italy next Sunday, the BoE flagged the challenges faced by the country’s banks, which have suffered questions over their attempts to raise private capital and could be forced to impose losses on creditors