British banks need £50 billion capital boost: BoE
30 November 2012
British banks would need to raise £20 billion to £50 billion of new capital or dramatically restructure their businesses with the Bank of England (BoE) saying it did not trust the way they valued their books.
According to the BoE's new Financial Policy Committee (FPC), banks would need to report capital ratios, which reflected a ''proper valuation'' of their assets as also a ''realistic assessment'' of the cost of recent scandals, including the manipulation of Libor and mis-selling of insurance products.
The demand comes close on the heels of the International Monetary Fund (IMF) calling on European lenders to shore up balance sheets and add to growing concerns that risk-weighted capital ratios were exaggerating the health of the global banking system.
Sir Mervyn King, BoE governor, declined to quantify the amount of capital needed for rectification of the situation, and only said that it was ''material''. However, the central bank's financial stability report published estimates of each of its concerns suggesting banks would have to raise between £20 billion and £50 billion in aggregate.
The BoE has instructed banking supervisors to start work on the tougher approach immediately and banks could be expected to identify how they would meet any capital shortfall early next year.
According to BoE officials, while the capital requirements differed from bank to bank, some lenders would need to raise capital or restructure their businesses.