RBS admits European stress test blunder

[LONDON] The Royal Bank of Scotland has accepted that it got its sums wrong over the European Banking Authority stress tests last month.

Revised figures revealed Friday showed that instead of passing the test easily as initial results from the exercise showed, the state-owned RBS had narrowly scraped through and was the weakest performer among Britain's banks.

The crunch audit was aimed at preventing a repeat of the crisis that nearly led to the euro's collapse.

The stress tests ran the banks through two different economic scenarios to see whether their balance sheets were healthy enough to withstand further economic shocks.

Under a baseline scenario, a bank's core capital ratio, a measurement of financial strength, must not fall below 8.0 per cent. In the adverse scenario, it must not fall below 5.5 per cent.

RBS's initial calculations initially resulted in a level of 6.7 per cent being reported.

However, the Edinburgh-based bank has now admitted that part of its modelling had been wrong and this should have been 5.7 per cent - barely above the minimum.

The error related to a 4.2 billion euro (US$3.3 billion) overstatement of its capital strength under the scenario. Shares fell nearly one per cent on Friday following the disclosure.

The worst results from the stress tests were concentrated in Italy, where some nine banks failed, as well as Greece and Cyprus with three each.

The RBS revelation came the day after British financial regulators fined the bank a combined £56 million (US$87.6 million, 70 million euros) for a series of IT failures that left customers unable to access services.

The bank is about 80-per cent owned by the British government after it was rescued with £45.5 billion of taxpayers' cash during the global financial crisis, making it the world's biggest-ever banking bailout.

AFP