Wednesday 30 November 2016 7:10 am

The results are out: Here’s how your bank would do if 2008 repeated itself

Royal Bank of Scotland has failed all of the Bank of England's stress test measures, the worst performer among the UK's major lenders.

RBS will now have to draw up a new capital plan, and the Bank's prudential regulation authority (PRA) will monitor its progress.

RBS finance chief Ewen Stevenson said: "We are committed to creating a stronger, simpler and safer bank for our customers and shareholders. We have taken further important steps in 2016 to enhance our capital strength, but we recognise that we have more to do to restore the bank's stress resilience including resolving outstanding legacy issues."

Barclays failed on one measure of the stress tests, however the PRA has not required the bank to come up with a new capital plan "in light of the steps that Barclays had already announced to strengthen its capital position".

Meanwhile, Standard Chartered met all its hurdle rates but failed to reach the minimum capital requirement. The PRA said StanChart is already taking steps to address the issue.

In total six banks and one building society took part in this year's stress tests; Barclays, HSBC, Lloyds Banking Group, Nationwide Building Society, the Royal Bank of Scotland Group, Santander UK and Standard Chartered.

Read more: Here's how the banks have responded

The capital hurdle rate banks have had to pass to be deemed able to survive another crisis is different for each lender, unlike the two previous years of testing, and attempts to better reflect an additional buffer those lenders which are global systemically important banks are expected to hold.

This year's round of testing, thought to be the Bank of England's toughest yet, was designed to mimic how the larger lenders would cope if there were to be a financial crisis similar to that in 2008. 

The scenario considered included the global economy contracting by almost two per cent, UK house prices taking a  31 per cent dip, oil prices dropping to a mere $20 per barrel and UK unemployment levels jumping by 4.5 percentage points.

However, the nightmare scenario was dreamt up ahead of June's Brexit vote.

New model required

"While the adverse scenario incorporates a global growth downturn, capital flows to safe havens and a depreciation of emerging market currencies against the dollar, it does not model the impact of the uncertainty resulting from Brexit negotiations nor the consequences of the actual exit from the EU," explained Edward Chan, banking partner at Linklaters, ahead of the results being released. 

"It will be interesting to see how the adverse scenario is modelled in next year’s stress test given the Bank of England cautious response post Brexit."

Stress testing will also be all change next year. For example, the Bank of England has already confirmed that it will be trialing banks against two sets of scenarios from 2017 onwards.

"While central banks and regulators are wary of increasing capital requirements given growth concerns, we can expect scenarios to become more nuanced and realistic," said Jamie Woodhouse, managing director, finance & risk services, at Accenture UK&I. "For example, extending scenarios to include cyber-attacks, misconduct, infrastructure failures, major geo-political shifts and changes to global trade patterns."