James Moore: While RBS and Lloyds are just capital, speculation starts about the small fry

Outlook Remember when the Bank of England said Britain's banks were short of £25bn? Pfah. Storm in a teacup. Nothing to see here, move along.

Is that the conclusion we are supposed to draw from yesterday's unscheduled "we're all OK, honest" announcements from Lloyds and Royal Bank of Scotland?

It's rosy in their (capital) gardens, they say, which will grow through a "strongly capital-generative core business" plus a few more disposals (Lloyds) and "delivery against against its business plan" (RBS).

And the watchdogs are happy enough. Even if the latter rather had to hurry its announcement out – it appeared exactly three hours and 51 minutes after Lloyds had proclaimed it was fine and dandy at 7am – just to make sure nobody played capital spin the bottle and started fretting that RBS would need something worrying, like a cash call, to deal with its share of that £25bn.

Now, of course, people are going to start looking at smaller banks and wondering what they're going to do, and when they're going to issue similar updates, given no one was ever really concerned about HSBC and Barclays which were watching the fun from the sidelines.

It appears that when it put the big, scary number out there, the Bank of England wanted to send a message to certain banks but didn't want to create damaging speculation about weaker ones.

So it didn't communicate how much individual institutions needed. Privately, bankers say it didn't communicate all that well with them either. The net result is that everyone immediately started speculating furiously. That speculation was becoming enough of a problem that yesterday's announcements (perhaps under pressure from a Government which didn't want anything to hit the share price of Lloyds given its plans to start selling soon) were issued to nip it in the bud.

So where do we go from here? Well you might think now that the Bank, in putting out the figure for UK lenders' combined shortfall, was in effect screaming "fire!" in the midst of a crowded theatre in response to someone lighting a cigarette. Or you could start getting really worried about the smaller lenders, and just how much their share of that scary looking £25bn amounts to. Not to mention, given that they mostly lack Lloyds' "strongly capital-generative core business", just what on earth they're going to do to deal with it. Remember Co-op and all those reports suggesting it needs to find £1bn, and perhaps double that, from, well, where precisely?

There is still debate about the reality of UK banks' capital and whether they have enough of it to withstand a financial crisis mark two. Hawks even now argue that they are still deficient; those of a more dovish persuasion believe that the issue is essentially self-fixing over time.

However, there can hardly be any debate about the way the Bank's Prudential Regulation Authority has handled this issue: it leaves something to be desired.

The International Monetary Fund hailed the improvements to the UK's "regulatory architecture" yesterday.

The architecture might be improved, but when you consider what it looks like, and how (on this evidence) it is operating to date... let's just say it may be time to call in the building inspectors.