State-owned bank Royal Bank of Scotland Group plc (LON:RBS) saw shares sink on Wednesday as it failed the annual Bank of England stress test to see how it would cope in another financial crash.
The bank, 73% owned by the UK government, has had to draw up a new capital plan and bolster its balance sheet by £2bn.
Fellow big caps Barclays (LON:BARC) and Standard Chartered (LON:STAN) also failed the crisis test on some measures but do not have to submit revised capital raising plans.
RBS taking steps to enhance strength
Ewan Stevenson, RBS's finance chief said: "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."
The tests were said to be the toughest yet set by the Old Lady of Threadneedle Street due to the unprecedented economic environment currently and are based on hypothetical scenarios.
These include a plunge in house prices and the global economy shrinking 1.9%.
Britain's largest seven lenders were put to the test and RBS was the worst, with Barclays and Standard Chartered also struggling. Their shares fell 1.03% and 1.28% respectively.
Elevated gloabl risks
The Bank of England has described global economic risks as "elevated" and in the UK heightened by the recent Brexit vote and high level of debts in UK households.
Mark Carney, the BoE's governor, has said households were “drawing down their savings for the first time since the crisis”.
James Hughes, chief market analyst at gkfx, noted this was the first time a warning like this on household spend had been given since the credit crunch.
He added: "The news this morning shows that UK financial institutions are realistically nowhere near capable of fending off another financial crisis.
"Many will say that a global crisis is not on the horizon, however with UK reliance on borrowing from other nations to finance its now growing deficit, the global trend of rapidly increasing debt paint a very worrying picture, the potential Brexit impact and the growing inadequacy of the ECB mean that if a crisis should happen, it’s not only UK banks that couldn’t cope, but the whole financial system of Europe."
Shares recovered slightly in the afternoon, although they were still down 2% on the day to 193p.
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