LAST Friday the European Banking Authority (EBA) published the results of its stress test on 51 of the biggest banks throughout Europe and Britain.
Fearful of what they would find the EBA decided for the first time not to issue pass or fail marks to the banks but merely to assess how the banks might perform in ‘adverse economic conditions’.
Even cherry-picking the banks subjected to the test (banks in Greece, Portugal and Ireland were excluded) didn’t give any cause for optimism, including the results for the four British banks – RBS, Barclays, HSBC and Lloyds – that were tested.
RBS, which had to be rescued by the taxpayer after the crash of 2008 and is nearly 80% publicly owned, came out worst. Under ‘adverse conditions’, a fall in GDP of about 7% between now and 2018, RBS’s capital levels fell by 7.5% points, the third biggest fall of the 51 banks tested, leaving it according to the EBA with a capital buffer of just over 8%.
A capital buffer is the requirement for banks to hold assets that will cover any losses caused by an economic crisis, that is when loans turn bad and the bank is saddled with a mountain of debt. These buffers were introduced after the financial collapse of 2007/8 when it became apparent that banks had nothing to back up all the loans they were pushing out on an industrial scale.
As it is, RBS is faced with the prospect of only having £8 in capital to cover every £100 it has lent out. If even a fraction of these loans go bad RBS will sink like a stone with the other UK banks, all of whom performed badly in the test, following rapidly.
Turning reality on its head, the Bank of England said of the results: ‘They provide evidence that major UK banks have the resilience necessary to maintain lending to the real economy, even in a macroeconomic stress scenario.’
The Bank of England last month actually reduced the amount of capital it insists banks hold as a buffer, arguing that as British industry collapses the banks must have every encouragement to lend even more money.
Their answer to the debt crisis and the collapse of British capitalism’s industrial base is to call for more debt! This goes hand in hand with the widely expected decision by the Bank to cut interest rates from the historically low level of 0.5% to 0.25% later this week.
By cutting the cost of loans and making it less profitable for banks to keep what capital they have in their vaults, Carney and the Bank are desperately trying to revive a British capitalist system that is crashing. This was starkly revealed in the latest figures for manufacturing.
A survey of manufacturing found that the index for manufacturing purchases fell to 48.2 in July. 50 points is the level that separates growth from contraction and this fall represents the fastest rate of contraction in UK manufacturing since the start of 2013. The rate of unemployment also increased at the fastest rate for over three years.
The scenario used by the EBA of an economic recession leading to bank failures and collapses is, in fact, a reality today. The brutal truth is that every measure taken by the capitalist class and the bankers to try and save a bankrupt British capitalist system has only resulted in an even bigger mountain of debt that cannot be repaid or sustained.
The only way out for the bourgeoisie is to make the working class pay for the crisis by having their savings and wages kept in the banks confiscated when the inevitable happens and the banks go bust, while at the same time cutting all state spending on the welfare state and health service in order to bail out the banking system.
For the working class there is only one solution to this crisis, and that is to put an end to this bankrupt capitalist system once and for all through its overthrow and advancing to a workers government which will expropriate the bankers and bosses and advance to a planned socialist economy.
