The Bank of England (BoE) on Wednesday told British
banks to raise an extra $38 billion in
capital by the end of the year to cushion losses and maintain
Not all banks need to raise more cash, the BoE's financial policy committee (FPC) said, but did not name those which do.
Over the coming three years banks could expect to lose as much as 50 billion pounds, the committee said, due to bad debts, exposure to the crisis-hit eurozone, compensation payments in scandal over for the miss-selling of insurance and "a more prudent approach to risk."
The committee, which only began its work last year and which is tasked with spotting the seeds of another financial crisis, had warned in November that the gap could be as much as 60 billion pounds.
Shares in Lloyds and Bank of Scotland, both of which had to be bailed out by the tax payer during the crisis, rose on the news that the shortfall was not as large as it could have been.
Commentators believe the two banks, which have already announced measures to raise cash, are those most likely to be undercapitalized. The government has made it clear it will not provide any more money for them.
The FPC's capital announcement is part of steps to conform to international banking requirements as set out in Basel III, which mean banks will have to further bolster their balance sheets in the coming years.
The committee also recommended that the Prudential Regulation Authority, which is set to replace the watchdog Financial Services Authority next week, should apply higher capital requirements to major banks with "concentrated exposures to vulnerable assets."
The restructuring of balance sheets should be done in a way that did not "hinder lending to the real economy," the committee emphasized.
But analyst James Barty of the Policy Exchange think tank warned that increasing capital ratios could limit lending to small businesses.
"We need more flexibility in the regulatory system so that banks' capital can support their lending not just make sure they don't go bust in a crisis," he said.
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