Bank of England warns UK banks may lack enough capital

Thu Nov 29, 2012 7:07am EST
 
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By David Milliken and Alessandra Prentice

LONDON (Reuters) - The Bank of England stepped up pressure on commercial banks to shore up their capital on Thursday, days after the government chose a leader of the global push for tighter banking regulation to head the central bank.

The BoE's Financial Policy Committee (FPC), which from next year will take charge of British bank regulation, urged the current regulator to reassess whether banks' capital properly reflects the risk of loans going sour and future fines for misconduct.

British banks may take an over-optimistic assessment of the risks facing them, it said.

Banks' true capital position was probably worse than relatively healthy official numbers imply, and this is hurting investor confidence, the BoE said.

"Progress by banks in raising capital has slowed and investor confidence remains low," the BoE said in its half-yearly Financial Stability Report. "Market concerns are likely to reflect in part uncertainty about bank capital adequacy."

The FPC has repeatedly urged British banks to raise capital levels, and November's report marks a stepping up of these recommendations, despite a slight reduction in the risks facing the financial system due to an easing in euro zone tensions.

"UK banks' capital buffers, available to cushion losses and maintain the supply of credit following realization of a stress scenario, are not as great as headline regulatory capital ratios imply," it said.

British bank shares trimmed gains after the Bank of England's call, saying banks may not have enough in reserve to protect against problems ahead.   Continued...

 
Construction workers sit amongst the columns of the Bank of England in central London July 23, 2008. REUTERS/Andrew Winning