RBS has told its clients to "sell everything" and seek shelter in safe haven assets, at the beginning of what it expects will be a "cataclysmic year".
RBS sent a note to investors urging them to sell everything except high quality bonds. "This is about return of capital, not return on capital. In a crowded hall, exit doors are small," it said.
The banks' doomsayers believe we're on the tip of a global deflationary crisis, heralding turmoil on some of the world's biggest stock exchanges, and sending oil prices as low as $16 per barrel. They pointed to flashing stress alerts not seen since the run up to the Lehman Brothers crisis.
The Telegraph reports that Andrew Roberts, the bank's credit chief, warned companies are being squeezed by a "nasty cocktail" of record high global debt ratios, and a contraction in global and trade loans.
He expects Wall Street and European stocks to fall between 10 to 20 per cent. Britain's blue-chip FTSE 100 is expected to sustain even larger losses, through its heavier exposure to energy and commodities.
"China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous," he said.
"London is vulnerable to a negative shock. All these people who are 'long' oil and mining companies thinking that the dividends are safe are going to discover that they're not safe at all."
Concerns about the pace of China's economic slowdown has rippled through global financial markets this year. The Asian economy is trying to ensure a smooth transition away from export-led growth, towards more sustainable domestic, consumption-led growth.
But Roberts said: "We are deeply sceptical of the consensus that the authorities can “buy time” by their heavy intervention in cutting reserve ratio requirements, rate cuts and easing in fiscal policy."
RBS also warned brent oil prices could fall to just $16 per barrel, with Opec seemingly unable to respond to the slowdown in demand. The black stuff is currently heading towards $30 per barrel amid soaring oversupply, China's weakening economy and stock market turmoil, as well as the strong dollar.