BRITISH banks will have to build up bigger capital buffers against foreign loans if the Bank of England deems the other nations to be experiencing bubbles, the financial policy committee (FPC) said yesterday. The Bank of England argued that if it could have cut banks' exposures to US sub-prime mortgages, the credit crunch may have been less bad. The FPC, headed by Mark Carney , has powers to limit bank lending to sectors it fears are overheating. It can make banks hold more capital depending on the stage in the economic cycle, and against specific areas such as mortgage lending. And yesterday's update shows it will also look at lending by country. "The FPC may act either on all the residential property, commercial property or financial sector exposures of banks, irrespective of the domicile of the ultimate borrower," said the FPC report. "For example, had capital requirements been increased specifically on UK banks' US subprime residential mortgage exposures before the global financial crisis, this would have left banks better able to absorb subsequent losses and may also have limited the growth in these exposures."
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