RBS Performs Poorly In Major Bank Tests

The Royal Bank of Scotland (NYSE: RBS - news) has suffered the biggest blow to its financial strength of any UK bank in Europe-wide checks.

The bank's capital ratios fell by more than seven percentage points in tests to assess how large financial institutions would perform in another major crisis.

The European Banking Authority tests suggested RBS (LSE: RBS.L - news) would be left with just an 8% capital ratio buffer. The minimum considered acceptable is 4.5%.

Barclays (LSE: BARC.L - news) would see its capital ratios fall by less than RBS - four percentage points - but would be left with a lower capital ratio buffer of 7.3%.

A bank's capital ratio measures the funds it has in reserve against the riskier assets it holds that could be vulnerable in the event of a crisis.

The tests showed that RBS and Barclays would both be among the 15 weakest banks of 51 assessed across the continent.

The world's oldest bank - Banca Monte dei Paschi (Milan: BMPS.MI - news) di Siena in Italy - was the worst performer overall.

RBS finance director Ewen Stevenson said the stress test results showed the bank was making progress towards being "safe and sustainable".

He said: "We are confident that in delivering our strategy, we will transform RBS into a low-risk, resilient bank."

Former chancellor and Brexit-supporter Lord Lamont urged people not to be overly concerned about the bank's position and warned the real danger to the European economy came from continental institutions.

"It had the third biggest impact on its capital, but it is still well above the minimum capital that would be required," said Lord Lamont.

"So, I think there is work to be done, but I think actually the focus of attention is more on other banks - and also on the banks that weren't included in these stress tests.

"These stress tests covered the 51 largest banks in Europe, whereas the concern has been in a number of countries - Italy, Germany, but also Portugal and Greece - who are excluded from these tests because their banks were too small.

"That is where it is thought there is a lot of weakness in the European banking system," the Tory peer told the BBC's Today programme.

Lord Lamont warned that the situation in Italy and other countries "could create a real political crisis" for Europe which would have an impact on the UK.

RBS is also facing a penalty from US regulators - which could amount to £8bn - over sales of mortgage bonds before the 2008 banking crisis (Other OTC: UBGXF - news) .