Banks given ultimatum to plug their black holes

Warning to sort out capital shortcomings amid frustration over the delays

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The Independent Online

Banks have been warned that they have just a month left to agree plans by the Bank of England to plug capital black holes.

It comes amid mounting frustration among regulators about what is being seen as "foot dragging" by the industry over the issue.

Yesterday the beleaguered Co-operative Bank, which remains in talks with its supervisors over its capital position, confirmed plans to cease lending to new business customers as it battles to restore its capital base.

Earlier this week Lloyds and Royal Bank of Scotland said they had agreed programmes to plug their parts of a £25bn shortfall facing the UK industry that was identified by the Bank in March this year.

But it is understood supervisors have still not struck deals with Barclays, which currently doesn't plan a similar announcement, or Santander UK, in addition to the Co-op.

And even though Lloyds and RBS are now in the clear, regulatory sources say they had to be dragged "kicking and screaming" to the table. Both banks said they would be dealing with their problems via a combination of retained profits generated by existing business plans and disposals.

Banks have privately complained of a lack of communication with the Prudential Regulatory Authority, which is the subsidiary of the Bank that assumed oversight of banks' financial soundness under Chancellor George Osborne's shake-up of City regulation.

In a statement, the Bank said: "There should be no confusion. What Lloyds and RBS have signed up to is consistent with the Financial Policy Committee's recommendation. We will hold them to those recommendations."

Co-op, which acts as banker to the Labour Party, said it took the decision to pull out of new commercial lending as part of a strategic review instigated by the Co-operative Group's chief executive Euan Sutherland.

Some analysts have suggested that Co-op could need to find as much as £2bn to satisfy watchdogs. The bank was plunged into crisis after Moody's downgraded its credit rating by six notches to junk not long after its attempt to buy Verde from Lloyds Banking Group collapsed.

Its chief executive Barry Tootell resigned the next morning.

While its review is ongoing Mr Sutherland, a former chief operating officer of B&Q owner Kingfisher, has decided the bank's primary focus should be on "serving and expanding our presence amongst retail consumers".

Existing business clients will, however, continue to be "supported", Mr Sutherland said: "This decision is part of our commercial strategy to play to the traditional strengths of the bank."

One bank not in its regulators' crosshairs is HSBC, largely thanks to its enormous deposit base which means it does not have to rely on wholesale money market funding for its lending.

The bank, however, saw 11 per cent of its investors vote down its remuneration report in the wake of its £1.2bn fine from US watchdogs for acting as a conduit for dirty money. Its chief executive Stuart Gulliver received an annual bonus of nearly £2m despite this for his "strong leadership" and "personal behaviour". In total he racked up £7.4m through the various elements of his pay.

Chairman Douglas Flint apologised for the scandal at the bank's annual meeting yesterday in London along with other mis-steps such as the mis-selling of payment protection insurance.