FPC minutes reveal hawks wanted banks to raise even more capital

Some Bank of England regulators wanted lenders to be forced to raise even more fresh capital than the £25bn 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 per cent of risk-weighted assets by the end of the year, some will be highly fragile due to their high levels of borrowing.

They pointed out that more than a quarter of the UK's banking assets, equivalent to 100 per cent of Britain's GDP, will be held by banks with leverage levels in excess of 40 times their equity. Some FPC members argued that this left "little margin for error" for these banks against a backdrop of weak global growth and possible new eurozone financial shocks.

These members also expressed "concern" that such fragile banks would not be able to support greater lending to the UK economy.

The 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 replaced by Dame Clara Furse, Richard Sharp and Martin Taylor. The FPC also reiterated banks need "restraint" on staff bonuses and dividends to help bolster capital.

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