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UK banks must raise more capital to cover risks

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by Jan Harris
UK banks must raise more capital to cover risks

UK banks need to raise £60 billion to meet regulatory risk standards and to cover fines and compensations for mis-selling, the Bank of England says in its Financial Stability Report (FSR).

Banks will need between £5 billion and £35 billion to meet regulator risk standards the report said, while a further £4 billion to £10 billion will be needed for mis-selling costs, and £15 billion for consumer loans and European debt.

Sir Mervyn King, the Governor of the Bank of England, said that these risks gave a false picture of banks’ financial health and banks that have insufficient capital could jeopardise the UK’s economic recovery.

He called for banks to accurately account for potential losses on their balance sheets and warned they may need to recapitalise or restructure to ensure they have sufficient capital to cover a potential future crisis.

The Bank of England’s Financial Policy Committee (FPC), which was established to safeguard against a further financial crisis, wants the Financial Services Authority (FSA) to conduct an audit of bank loans.

It is also asking banks to bring the valuation of their assets up to date.

The measures are expected to help restore the trust of the markets and investors in banks.

The Chancellor, George Osborne, has warned that the government will not bail out the banks in the event of a future crisis, as it did in 2008, when it spent £67 billion in bailout money.

Sir Mervyn said: “The recommendation we have made will soon get the banks back to a position where they can support our economic recovery.”

Meanwhile, the CBI is calling for the Chancellor to accelerate plans for a state-backed business bank.

CBI director general John Cridland said it would ‘ease the transition to a new normal of business lending’.

The CBI also said it supported the Chancellor’s deficit reduction plan but called for measures to economic boost growth.

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News posted: November 29, 2012

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