Royal Bank ‘in bad shape’ 8 years after taxpayers’ bail-out

THE Royal Bank of Scotland is still in ‘very bad shape’ eight years after a public bail-out, a leading think tank academic has warned.

Professor Kevin Dowd’s comments came as he warned British banks are ‘sailing blindly’ towards a financial crisis because tests designed to measure their ability to cope with an economic or financial crisis are too easy.

In a new report, published by the Adam Smith Institute, he claims British banks would buckle under the strain of a major economic shock like that of 2008.

The Durham University finance and economics academic also blasted RBS, which he says performed ‘badly’ in a recent test, as a ‘problem child’ among European banks.

However, RBS maintains that the procedure had showed that it had made progress, and said it was confident in its strategy.

The think tank report says that most stress tests that banks undergo are ‘like ridiculously easy exams with a ludicrously low pass rate’.

It claims that every single UK lender would currently fail ‘more rigorous’ ones which are carried out by the US Federal Reserve.

Yesterday, Professor Dowd said that in a recent stress test by the European Banking Authority RBS had ‘passed, but by the minimum possible standard. There was no room for manoeuvre’.

He added: ‘If the example of stress had been a little bit worse it would have fallen below the standard. The scenario was quite mild.’

He continued: ‘I think they [RBS and Lloyds] are in a very bad shape, and RBS especially.

‘You have to bear in mind that RBS also did badly in the Bank of England stress test, and they did badly last week in the EBA stress test.

‘RBS is a very weak bank with a market value a little bigger than Airbnb and this is meant to support total assets of about half the GDP, half the national produce.’ He added: ‘It’s a low buffer – the cushion that absorbs losses on assets is low. It’s a very vulnerable bank. There’s no margin.

‘RBS still has serious problems, after all these years of public ownership, it’s still not sorted them out.

‘The question is what to do about it? My advice would be to shut it down.’

His study, which pinpoints 13 flaws in the Bank of England stress test, said that the UK is ‘sailing blindly into a second global financial crisis’.

It calls for the tests to be scrapped in favour of forcing decision-makers to be personally liable for risks.

RBS was briefly the largest bank in the world before the 2008 collapse and the general financial crisis, which saw a slumping share price and major loss of confidence.

RBS – along with Lloyds – was bailed out by the UK Government under a £500million bank rescue package, announced in October 2008.

However, commenting on the results of the recent EBA test the chief financial officer at RBS Ewen Stevenson said: ‘The EBA stress test results demonstrate our continued progress towards transforming the balance sheet to being safe and sustainable.’

He added: ‘We are confident that in delivering our strategy, we will transform RBS into a low risk, resilient bank.’

‘No room for manoeuvre’