Posts Tagged ‘bank of england’

Bell & Company urges caution for RBS and Barclays customers

Bell & Co urges caution for RBS and Barclays customers after banks were recently exposed by stress tests

It’s fair to say that England’s banks are robust and it’s likely that they are already well prepared for anything that they might face as a result of Brexit or other economic upheavals. However, while this is true for the majority of banks, it seems that two of the biggest names on the high street might not quite live up to expectations.

Recent stress tests carried out by Regulators of Threadneedle Street have revealed that both RBS and Barclays fell short of the standards expected and may not survive in detrimental situations.

So, what do these stress tests entail and what does it mean for these two major banks?

The stress tests

Stress tests are designed to model sharp economic downturn and see how banks would behave and perform when confronted with this reality. Introduced during the financial crisis, today’s stress tests are in place to probe whether any given bank’s balance sheets would be able to cope with a ‘doomsday’ scenario without crumbling.

Some of the hypothetical conditions implemented during the most recent stress tests included a surge in defaults by UK consumers and a sharp rise in interest rates.

How Barclays and RBS did in the tests

Unfortunately for these two major UK banks, both fell below their minimum capital levels in the stressed scenarios, meaning that it’s likely that they would not be able to perform effectively if a new financial crisis were to take place. RBS was hoping to restore its dividend payments and return to profitability by next year, so the results of the stress tests are likely to be a major sting to them and those that bank with them.

RBS’s capital also fell to a low point of 7%, somewhat below its 7.4% minimum ‘systemic reference point’. Similarly, Barclay’s capital ratio fell from a 7.9% minimum requirement to 7.4%. The five other banks that were involved in the testing – HSBC, Standard Chartered, Lloyds Banking Group, Nationwide and Santander UK – were all able to maintain their minimum capital levels throughout the course of the exercises.

What could be next

While these tests demonstrate some of the problems that Barclays and RBS may encounter during a financial crisis, they do not account for the biggest risk that all banks are likely to face in the not too distant future;  Brexit.

Furthermore, since the start of the year, RBS has managed to bolster its balance sheets by shedding assets and Barclays has raised capital by selling a large portion of its African operation, so who can really say what’s in store? Only time will tell.

Why are people in the UK so in debt?

A recent report has revealed that the UK is one of the most indebted countries in the world, with about £25,000 worth of debt for every citizen—or £1.7 trillion overall. This figure was worked out by calculating the UK’s debt-to-GDP ratio, which stands at 89%; a very large percentage that means we share the shame with only about 19 other countries.

This is, obviously, a lot of debt to deal with. The government may borrow and loan money all the time, but the UK people bear the weight of debt personally too.

So what’s the cause?

Student loans are on the rise

More and more of us are going through to higher education, and the days when the government gave you a grant to go are long gone. Instead, universities charge up to £9,000 a year per student, and there are indications that could be on the rise.

Although you don’t have to pay back student debt before you earn a certain level, if you’re a UK national, it means that a hefty chunk of change is being taken away from your paycheque in tax before it even gets to you.

Wages are stagnating, but the cost of living is going up

Chocolate bars that cost 35p a few years ago are now worth 60p. The price of milk is going up. It costs more to buy clothing and shoes. Unfortunately, wages are still pretty much what they when all these price rises happened. This means that it costs more and more for the basics, and there’s less to go spare. People might take out a loan for a holiday or Christmas, and struggle to pay it back if wages are squeezed even more.

We’ve forgotten what we’ve learned from 2008

After the crash of 2008, we promised ourselves that we would never let ourselves get into the mess again. However, that was not the case. More and more things seem ‘essential’ enough to put ourselves in debt for, but unfortunately, it’s taking more and more time to pay off any loans—which, in turn, means the interest increases.

Signs are pointing to another crash happening shortly, as the Bank of England has warned about it; Britain may soon find that its accolade of being one of the most indebted nations on earth will not be a good thing for its citizens.