Banks 'still do not have enough capital'

The billions in capital that Britain's banks have raised to bolster their balance sheets in recent years is still not enough, the Bank of England's Financial Policy Committee said yesterday.

The risk watchdog at the heart of the Bank of England, in one of its first public remarks, said the industry should raise more money "as early as feasible", a stark warning that will do little to ease the fears of investors or consumers.

The two largest bailed-out banks, Lloyds and Royal Bank of Scotland, remain deeply in trouble four years after Lehman Brothers went bust.

The FPC said banks had gone as far as they could to raise capital by keeping down pay, dividends and share buybacks. "But," it added, "the committee remained concerned that capital was not yet at levels that would ensure resilience in the face of prospective risks. It therefore advised banks to raise external capital as early as feasible."

The 11-member committee reached this decision at its quarterly meeting on 16 March, and said it would review progress by banks at its next meeting in June. It did not specify how much capital was needed but its remarks will put pressure on bank chief executives to talk to investors, perhaps from overseas. Barclays raised many billions from Middle East investors at the height of the crisis, avoiding the need for direct government support.