Some Bank of England regulators wanted lenders to be forced to raise even more fresh capital than the £25 billion they were told to produce last week, minutes from the latest meeting of the financial policy committee indicate.
The minutes note that some members of the new City super-regulator are concerned that even after banks have raised their capital ratios to the required 7% of risk-weighted assets by the end of the year, some institutions will be highly fragile due to their high levels of borrowing.
It pointed out that more than a quarter of the UK’s banking assets, equivalent to 100% of Britain’s GDP, will be held by banks that have leverage levels in excess of 40 times their equity. Some FPC members argued that this level of leverage left “little margin for error” for these banks against a backdrop of weak global growth and the heightened risks of new financial shocks from the eurozone.
These members also expressed “concern” that such fragile banks would not be able to support greater lending to the UK economy.
Chancellor George Osborne announced a shake-up of the FPC last week. Robert Jenkins, one of the most outspoken advocates of the need for the banks to raise more capital, and Michael Cohrs will be by with Dame Clara Furse, Richard Sharp and Martin Taylor.
The FPC also reiterated its recommendation that banks should “continue to exercise restraint” on staff bonuses and dividend payments to help bolster their capital levels.