UK's new watchdog tells banks to raise another $20.4 billion

Thu Jun 20, 2013 7:24am EDT
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By Matt Scuffham and Huw Jones

LONDON (Reuters) - Britain's banks will have to raise 13 billion pounds ($20.4 billion) of extra capital and meet new a new cap on lending ahead of international peers as the Bank of England seeks to curb risk in the financial sector.

The combined balance sheet of Britain's largest banks is five times the size of the economy, despite radical restructuring since the crash in 2008, and the country's central bank fears many are still too big to fail.

Yet privately, some bankers are already complaining that higher capital requirements and limits on leverage are hampering their ability to lend in support of government efforts to boost the fragile domestic economy.

The Prudential Regulation Authority (PRA), the Bank of England's new banking regulator, said on Thursday there was an aggregate capital shortfall of 27 billion pounds at the end of last year at Royal Bank of Scotland (RBS) (RBS.L: Quote), Lloyds Banking Group (LLOY.L: Quote), Barclays (BARC.L: Quote), Co-operative Bank CPBB_p.L and Nationwide Building Society.

The five have already outlined plans to bring the gap down by 13.7 billion pounds and the rest will be raised via disposals and restructurings.

Part-nationalized RBS accounted for just over half of the shortfall, some 13.6 billion pounds, underscoring the challenge facing Prime Minister David Cameron as he seeks to sell down the state's 81 percent stake in the bank.

The government admitted late on Wednesday that a sale of its stake in RBS was a long way off and said it would review the possibility of splitting RBS, putting its toxic property loans into a so-called "bad bank". Finance minister George Osborne said such a break-up should have happened five years ago.

Many people, including Osborne, have said previously that creating a bad bank for RBS would be too costly and one top-10 RBS investor warned it could damage the wider economy.   Continued...

Commuters walk to work across London Bridge, heading into the City of London June 19, 2013. REUTERS/Luke MacGregor