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Bank of England tells banks to raise £25bn Bank of England tells banks to raise £25bn
(about 1 hour later)
Major UK banks must raise a total of £25bn in extra capital by the end of 2013 to guard against potential losses, the Bank of England (BoE) has said.Major UK banks must raise a total of £25bn in extra capital by the end of 2013 to guard against potential losses, the Bank of England (BoE) has said.
In a statement, the BoE's Financial Policy Committee (FPC) said only some banks needed to raise the cash, but did not name them. In a statement, the BoE's Financial Policy Committee (FPC) said only some banks need to raise the cash, but did not name them.
It said banks could face losses of £50bn over the next three years, relating to bad loans and fines. It said banks could face losses of about £50bn over the next three years, relating to bad loans and fines.
More money may need to be raised after the end of the year, the FPC said. The order is the first from the FPC, the new financial stability regulator.
The order is the first issued by the FPC since it formally gained powers last year. It said UK banks and building societies could lose billions of pounds over the next three years relating to "high-risk" loans in the UK commercial property sector and vulnerable eurozone economies.
BBC business editor Robert Peston says in the short term the need to raise cash will be bad news for investors, including taxpayers who still own big stakes in two banks. They may also lose money through fines, and require extra capital to support a "more prudent approach to risk".
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. Some banks already have enough capital to cover these costs, the FPC said, but others are short.
The need to raise more capital may delay plans to sell the stakes back to private investors. Yet more money may need to be raised after the end of 2013, the FPC warned, so that banks conform to incoming "Basel III" accords on banking regulation.
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. Sustain lending
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. No new government money will be required. Banks are likely to raise the funds by issuing more bonds or selling shares.
Regulation overhaul But BBC business editor Robert Peston says in the short term the need to raise cash will be bad news for investors, including taxpayers who still own big stakes in two banks - Royal Bank of Scotland and Lloyds.
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. If these banks are among those that need to raise more capital, it may delay plans to sell the stakes back to private investors.
The measures are also designed to ensure that banks are able to continue lending to businesses and each other, should another banking crisis hit.
The extra capital is needed "to ensure sufficient capacity to absorb losses and sustain lending", the FPC said.
The 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 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.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. The new watchdogs will replace the Financial Services Authority, which is set to close next week.