Newspaper article International Herald Tribune

U.K. Banks Get a Lecture on Need for More Capital ; Bank of England Says They Don't Have Enough to Protect against Risks

Newspaper article International Herald Tribune

U.K. Banks Get a Lecture on Need for More Capital ; Bank of England Says They Don't Have Enough to Protect against Risks

Article excerpt

In a twice-yearly report on the financial system, Mervyn A. King said British banks could be underestimating the risks facing them and should be urged to raise their reserves.

British banks need more capital to protect them against fallout from the crisis in the euro zone, the Libor rate-manipulation litigation and other potential costs, the Bank of England warned Thursday.

The central bank said in a report that current capital ratios at major British banks -- a measure of their ability to withstand financial shocks -- were probably insufficient because possible future losses and costs of bad loans or other past business decisions might be bigger than expected.

The Bank of England also said that banks should be more transparent in communicating their credit buffers and look more prudently at risks to their financial soundness.

"We need to ensure that reported capital ratios do in fact provide an accurate picture of banks' health," Mervyn A. King, governor of the Bank of England, said during a press briefing as he presented the report. "At present there are good reasons to think that they do not."

Capital ratios at the four biggest British banks -- Barclays, Royal Bank of Scotland, Lloyds Banking Group and HSBC -- could be overstated by Pounds 5 billion to Pounds 35 billion, or $8 billion to $56 billion, according to a hypothetical example in the report. That means that the banks would, under certain situations that the central bank did not disclose, need to raise an additional Pounds 5 billion to Pounds 35 billion.

The central bank declined to give a more concrete figure on how much it thought the banks should raise. Mr. King, whose term as governor ends next summer, has previously suggested that banks should cut bonuses and use the money to expand capital buffers. He has repeatedly warned during his tenure that banks' capital cushions are too thin.

Mr. King said Thursday that banks would not have to turn to taxpayers for more capital. Initiatives by the Treasury and the Bank of England, including cheaper financing for banks if they commit to increased lending, have been helping banks to access funds.

The Bank of England called on the Financial Services Authority, Britain's financial regulator, to talk to the banks and encourage a more realistic valuation of their assets, future costs and risks. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.