The Royal Bank of Scotland is the bank worst prepared for a major UK housing crash, stress tests by the Bank of England (BoE) have found.
In response to the failure, RBS has formed a new plan to firm up its balance sheet by £2bn via a programme of cost cutting and asset sales.
Barclays and Standard Chartered also failed a key part of the test, but both had already begun to implement plans to rectify their problems.
The hypothetical “doomsday” scenario included a fall of 31% in UK house price, a rise in UK unemployment to 9.5%, a 4.3% decline in UK GDP, a global GDP decline of 2% with the US and eurozone GDPs dropping by 3%, a recession in China, and oil dropping to $20 a barrel.
On news of the failure, shares in RBS fell by more than 4%, with shares in Barclays and Standard Chartered also seeing a small fall.
Eight years after the financial collapse and bank bailouts, RBS remains 73% owned by the British government. As fears over the effect of Brexit on the British financial sector grow, the bank remains vulnerable to another collapse and short of the money needed to survive.
The BoE’s Financial Stability Report, also highlighted the reliance of the UK on foreign money to finance its trade deficit, and the future risks to the UK financial sector posed by Brexit.
