RBS ranked third worst in European banking stress tests

Stress tests on major European banks reveal that RBS would be the third worst hit in a new economic crisis.

RBS, which taxpayers own 73% of, fared comparatively poorly in a survey by the European Banking Authority which looked at how much capital would be used up in adverse economic conditions.

The tests estimated the capital levels of RBS would drop by 7.5%, the third biggest decline of the 51 banks investigated.

But Tory former chancellor Lord Lamont urged people not to be overly concerned about the bank's position as he warned the real danger to the European economy came from continental institutions.

"It had the third biggest impact on its capital, but it is still well above the minimum capital that would be required.

"It has tier one equity capital even after the stress tests of over 7%, where the minimum is around 4%.

"So, I think there is work to be done, but I think actually the focus of attention is more on other banks - and also on the banks that weren't included in these stress tests.

"These stress tests covered the 51 largest banks in Europe, whereas the concern has been in a number of countries, Italy, Germany, but also Portugal and Greece, who are excluded from these tests because their banks were too small. That is where it is thought there is a lot of weakness in the European banking system," the Tory peer told BBC Radio 4's Today programme.

Lord Lamont warned that the situation in Italy and other countries "could create a real political crisis" for Europe which would impact on the UK.

The Bank of England said the stress tests on big British financial institutions "provide evidence that major UK banks have the resilience necessary to maintain lending to the real economy, even in a macroeconomic stress scenario."

Italian bank Monte dei Paschi di Siena fared worst with the stress tests showing 14% of its capital would be lost in adverse economic conditions.