UK banking system passes stress test challenge but RBS slapped on the wrist
Before the focus turns to the Opec meeting later today, the market is looking at the latest Bank of England Financial Stability report. In essence […]
Before the focus turns to the Opec meeting later today, the market is looking at the latest Bank of England Financial Stability report. In essence […]
Before the focus turns to the Opec meeting later today, the market is looking at the latest Bank of England Financial Stability report. In essence the report does not deliver doom and gloom, instead it highlights a few areas in need of work, but RBS, once again, looks like the weakest link in the UK banking sector.
Key takeaways:
The key takeaway from the report is that the outlook for financial stability is challenging, Brexit and high levels of household debt have been cited as the key reasons for this. Even though all of the main banks were expected to pass the more stringent stress tests it is really no surprise that RBS has failed to pass all of the stress test hurdles, and as a result it has updated its capital-raising plan. RBS’s share price had started to decline in recent days, so it will be interesting to see if this news is already baked into the price, and further declines may be limited.
RBS in the firing line:
RBS was the only bank required by the BOE to submit a new capital-raising plan. Its initial outline includes reducing costs (probably more job losses), reducing risk-weighted assets across the bank, and further asset disposals. RBS wasn’t the only bank that came in for criticism from the report; Barclays and Standard Chartered were also mentioned. Barclays was cited for its systemic risks, and Standard Chartered missed its tier one capital requirement, but both banks do not need to submit revised capital plans to the BOE. This is good news for Standard Chartered, as there had been some concern for the bank ahead of the publishing of this report due to its exposure to emerging markets and commodities.
BOE looks on the bright side
On the positive side, the BOE said that the UK is well able to finance its huge current account deficit, and the banking system, although not perfect, is in a position to support the UK economy, even in a severely stressed scenario.
Here are our key takeaways and potential market reaction: