EU stress test gives RBS a passing grade

Out of the 91 banks stress tested recently by the EU, government-owned Royal Bank of Scotland joins the ranks of those who have passed, sources say.  RBS joins the other three business bank accounts in the UK who have been determined to be able to weather any economic storms in the foreseeable future.

The seven banks that failed to pass the stress test’s muster, located in Germany, Greece, and Spain, will be required to increase the amount of working capital they currently hold in order to safeguard against such an occurrence.

The news that RBS passed the stress test comes in the wake of its 2008 government bail-out.  Deemed “too big to fail,” the government stepped in and prevented the bank’s collapse in a controversial purchase.  Spending over £20bn on the bail-out, the government subsequently infused capital into the failing bank, bringing the amount of shares owned by the government to 94 per cent.

RBS is required by regulation to hold 6 per cent of its liabilities at a minimum in core capital balances; the bank was found to hold 14.1 per cent.  Even if the foreign debt it held from such sovereign countries such as Portugal or Greece, the bank would only fall to 11.2 per cent, well above the minimums set in place.

A spokesman for RBS said in a statement that the bank continues to make excellent progress towards its plans to restructure, including to remove risk from its balance sheets.

Finance director Bruce Van Saun added that the Royal Bank of Scotland routinely runs its own internal stress tests, so they welcomed the EU stress test.  Despite the theoretical nature of these tests, Van Saun said, RBS believes they play a positive role in determining the relative strength of a bank and for the maintenance of strong ratios of working capital.

Van Saun concluded by stating that RBS was pleased that the stress test results demonstrated the strong position of the bank’s capital as it endeavours to follow their economic recovery plans into the future.

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