But the test – which exposed banks to headwinds in the global economy and dramatic movements in currency markets – also underlined the drop in the capital position of bailed-out Royal Bank of Scotland and the hit taken by Barclays observed under the imaginary scenarios. Banks from Italy, Ireland, Spain and Austria fared worst.
Spain’s Banco Popular, Bank of Ireland and Austria’s Raiffeisen were also among the weakest performers. The result for Deutsche Bank – regarded by the IMF as the world’s most systemically risky bank – was being scrutinised.
No banks from Cyprus, Greece or Portugal were actually big enough to fall within the scope of the test, which looked at four main risks: a rise in bond yields; rising public and private sector debt; weak profits at banks; and stresses from outside the banking sector.
Regulators said that the tests showed that the bank sector was much stronger than it had been at the time of the 2008 financial crisis, which led to the introduction of the stress tests. Even so, the European Banking Authority (EBA), which conducted the tests on lenders, acknowledged that more needed to done. Under the latest stress test scenario, some €269bn (£227bn) would be wiped off the capital bases of the banks.
A rescue package of the world’s oldest bank has been announced after a health check of the biggest banks across the EU showed that Banca Monte dei Paschi di Siena’s financial position would be wiped out if the global economy and financial markets came under strain.
RBS would finish with 8% capital ratio, with the minimum being 4.5%.
The Royal Bank of Scotland has taken the biggest hit to its financial strength of any UK bank subjected to European-wide health checks on major banks.
The 73% taxpayer-owned bank insisted that despite being the third-most affected of any of the 51 banks, it was well on the way to becoming stronger and more risk-averse.
Its capital ratios fall by more than seven percentage points under the tests imposed by the European Banking Authority and, under the imaginary scenario, ends up with an 8% capital ratio. The absolute minimum is 4.5%.
It means that RBS, like Barclays, is among the 15 weakest banks tested.
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