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Banks told to raise more capital by Bank of England Bank of England to call for banks to raise more capital
(about 1 hour later)
The Bank of England will tell the UK's banks they must raise more capital to absorb potential future losses. The Bank of England (BoE) is expected to tell the UK's banks they must raise billions more in capital to absorb potential losses.
The Bank of England's Financial Policy Committee (FPC) will make the ruling later on Wednesday. The BoE's Financial Policy Committee (FPC), which began work last year, will make the ruling later on Wednesday.
The move is its first big initiative since it was created by Chancellor George Osborne to maintain the stability of the banking system. Last November, the BoE suggested up to £60bn of extra cash may be needed.
The BBC's business editor, Robert Peston, says the order will come as rather a disappointment to the banks. BBC business editor Robert Peston says in the short term the move will be bad news for investors, including taxpayers who still own big stakes in two banks.
More than four years on from the financial crisis, the banks have been taking steps to strengthen themselves. Taxpayers still own more than 80% of Royal Bank of Scotland and almost 40% of Lloyds, more than four years after they were bailed out by the government.
Despite that, our correspondent says, the UK's banks still do not have enough capital to absorb potential future losses on loans. The need to raise more capital may delay plans to sell the stakes back to private investors.
He also says the view of the Bank of England is that the banks will not provide the credit needed for economic recovery unless and until they raise additional capital. Our correspondent says UK banks have been taking steps to strengthen themselves since the financial crisis began, but they still do not have enough capital.
The Bank of England has spent five months looking at whether the banks should raise more capital. He says the view of the BoE is that the banks will not provide the credit needed for economic recovery unless and until they raise additional capital.
Under the rules for the FPC, devised by the chancellor, it can and will make a declaration that the banks as a group have to raise a specific amount of new capital. The BoE's announcement is due at 0930 GMT.
Closer scrutiny Regulation overhaul
But it cannot and will not say that any particular bank in that group has to raise a particular amount. In its Financial Stability Report released in November last year, the BoE said banks may need to raise as much as £60bn to cover potential costs relating to hidden losses, regulatory demands and potential fines for mis-selling.
In the short term this will be seen as bad news by investors, including taxpayers who own more than 80% of Royal Bank of Scotland and almost 40% of Lloyds. The FPC, which formally gained powers in December, is expected to say how much must be collectively raised by the banks, but will not say how much specific banks need to raise.
It means the day when these banks can resume dividend payments will be delayed again, meaning that a return to private ownership will also be delayed.
The Bank of England's FPC has overall responsibility for financial regulation in the UK and is part of a new order of regulation designed to keep the banks under closer scrutiny.The Bank of England's FPC has overall responsibility for financial regulation in the UK and is part of a new order of regulation designed to keep the banks under closer scrutiny.
It will oversee, and have the power to instruct, two new financial watchdogs: the Prudential Regulation Authority (PRA), which will take over responsibility for supervising the safety and soundness of individual financial firms and the Financial Conduct Authority (FCA), which will be tasked with protecting consumers from sharp practices, and making sure that workers in the financial services sector comply with rules. It will oversee two new financial watchdogs: the Prudential Regulation Authority (PRA), which will take over responsibility for supervising the safety and soundness of individual financial firms, and the Financial Conduct Authority (FCA), which will be tasked with protecting consumers and making sure that workers in the financial services sector comply with rules.
The new watchdogs will replace the Financial Services Authority (FSA), which is set to close next week.