RBS fails Bank of England's annual stress test

The Royal Bank of Scotland needs to raise around £2 billion to boost its capital after failing the Bank of England's annual health check of the financial sector.

The lender, which is 73% owned by the taxpayer, was the worst performer in the stress test and has drawn up a plan to bolster its resilience in case of a financial crisis.

Barclays and Standard Chartered also struggled in the test, but the Bank said their existing plans mean no further action is needed.

The Bank's more severe stress test so far gauged the resilience of the seven biggest lenders - RBS, Lloyds Banking Group, HSBC, Barclays, Santander, Standard Chartered and Nationwide Building Society - against a global economic crisis and crashing house prices.RBS failed because it is increasingly liable to fines, and has higher rates of unsecured commercial lending.

In the worst case scenario as tested by the Bank, RBS would take a £24 billion hit.

The Bank's Financial Policy Committee said that as a result of action taken by RBS, "the banking system is in aggregate capitalised to support the real economy in a severe, broad and synchronised stress scenario".

RBS said it plans to boost its strength by cost cutting and selling assets.

Ewen Stevenson, chief financial officer of RBS, said: "We are committed to creating a stronger, simpler and safer bank for our customers and shareholders.

"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."

RBS came close to failing the stress test last year, while a test by the European Banking Authority in the summer revealed that the bank would be the third worst hit in the event of a new economic crisis.