Stressful Banking

 

In the aftermath of the banking collapse of 2008 (you remember that right?), new rules were imposed by the Bank of England on UK banks to ensure that they had sufficient in reserve to withstand any major financial shock again (rather than taxpayer bailouts).

 

An annual stress test then gauges the financial reserves, strength and resilience of the UK's seven major lenders - Lloyds Banking Group, HSBC, Barclays, Royal Bank of Scotland (RBS), Santander, Standard Chartered and Nationwide Building Society. The stress test involves testing against a doomsday scenario which would see economic growth plunge to levels seen during the financial crisis of 2008.

 

UK house prices fall by 31%

UK GDP falls by 4.3%

UK unemployment rises to 9.5%

Global GDP falls to 2%

China enters recession with -0.5% growth

US and Eurozone GDP falls by 3%

Oil drops to $20 a barrel

 

The 2016 annual stress test results have just been published and it is not pretty reading……RBS, Barclays and Standard Chartered all performed poorly and failed to meet the stress test minimum standards.    

 

On the one hand……all three financial institutions have now put plans in place to bring them up to a level to meet the stress test minimum requirements.

 

On the other hand……eight years on from the financial crisis and taxpayer-owned RBS is still short of the money it needs to survive another one. So is Barclays. So is Standard Chartered. RBS came bottom of the class by some way.

 

A financial crisis does not give notice when it is going to pay a visit and there is no time to get your house in order. Now add to that the rapid increase in debt in China and the world looks like a dangerous place - not for the first time.

 

RBS has been found vulnerable……and we own 73% of vulnerable RBS.

 

A little worrying.