Banks told to raise up to £60bn in new capital

 

Britain's largest banks have been told by their regulators that they must raise up to £60bn more capital to cover likely losses from bad loans, fines for misconduct and overly aggressive accounting practices.

The Bank of England Governor, Sir Mervyn King, made the announcement yesterday as he unveiled the central bank's latest Financial Stability Report. Sir Mervyn said there are "good reasons" to believe that the UK's financial institutions are inadequately capitalised.

The Financial Services Authority will, over the coming months, instruct individual banks to raise more capital. Sir Mervyn, the chair of the incoming super regulator, the Financial Policy Committee, did not put a figure on the overall size of the UK bank capital hole, only describing it as "material".

But the analysis cited within the report give some indication of the problem. It notes that banks might not be provisioning adequately for £15bn of problematic loans. It suggests that fines for Libor manipulation and payment protection insurance could be between £4bn and £10bn. And it points out that variations in the "risk weights" used by different banks to decide how much capital to hold against their assets could have resulted in equity buffers being overstated by between £5bn and £35bn. That would point to a capital hole of as much as £60bn.

Sir Mervyn said banks' share prices were low because investors did not believe that they held sufficient capital buffers to protect them in a future crisis. "Our aim must be to get to a point where private investors again have confidence in banks," he said.

In 2008 and 2009 the Royal Bank of Scotland and Lloyds Banking Group were recapitalised with £65bn in taxpayers' money. But Sir Mervyn said the Treasury had made it clear no further money would be coming from the public purse this time. "It was made very clear that the Treasury did not want to put new capital in to the state-owned banks," he said. "That's perfectly understandable, rather sensible, but this recommendation does not imply that the state will have to do that."

Banks will be required to raise more capital in three ways — raising more capital externally, issuing contingent capital (debt that converts to equity in a crisis) and disposing of non-core assets. The report said that since 2009 the banks have improved their capital ratios by deleveraging, rather than raising new equity.

The Governor also said without recapitalisation the wider economy would suffer. "The choice we face is to tackle the situation head on, which will be difficult and in some quarters unpopular, or to suffer a prolonged period of adjustment in which an inadequately capitalised banking system holds back recovery in the wider economy."

Tucker's tight-lipped on his future

Paul Tucker, who was beaten to the job of Governor by the Canadian central banker Mark Carney last week, declined to comment on his Threadneedle Street future yesterday. Asked at a press conference whether he intended to see out the remainder of his term as deputy governor to February 2014 he replied: "I'm the Deputy Governor for Financial Stability. There's a job of work to be done, I'm doing it."

When pressed he repeated: "I'm the Deputy Governor of Financial Stability and I'm doing that job."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Claims Administrator

£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

Recruitment Genius: Security Officer

£16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss