Royal Bank of Scotland will have to raise around £2 billion to boost its financial strength after failing the Bank of England’s annual health check of the sector.
The lender, which is 73% owned by the taxpayer, emerged as the worst performer in the stress test and has drawn up a plan overnight to bolster its resilience in case of a financial crisis.
Barclays and Asian-focused player Standard Chartered also struggled in the test, but the Bank said its existing plans mean they do not have to take further action.
The Bank’s most severe annual stress test so far gauged the resilience of seven UK lending giants - RBS, Lloyds Banking Group, HSBC, Barclays, Santander, Standard Chartered and Nationwide - against a global economic crisis and crashing house prices.
The Bank’s Financial Policy Committee said in light of the findings and action taken by RBS, “the banking system is in aggregate capitalised to support the real economy in a severe, broad and synchronised stress scenario”.
RBS said it plans to boost its balance sheet by taking actions including further asset sales and cost cutting, although it is not set to tap markets for extra finance.
CFO 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.”
RBS came close to failing last year, while a test by the European Banking Authority in the summer revealed that the lender would be the third worst hit in a new economic crisis.
Results of the Bank’s annual test came as it also published its Financial Stability Report warning the outlook “remains challenging” for the UK.