Bank of England warns UK banks need more capitalJuly 6, 2012
Members of the Financial Policy Committee (FPC), the Bank’s risk regulator, “judged that the overall capitalisation of the banking system was unlikely to be sufficient for stability to be assured” if there were “severe but plausible” developments in the sovereign debt crisis, according to minutes of last month’s meeting.
The committee was also sufficiently concerned about weak lending in the UK to consider suspending the rules governing how much banks must hold in cash and other liquid assets to get credit flowing again. The rules may have “pushed up the pricing of loans” and, by relaxing them, funds “supporting liquid assets could potentially be used instead to finance lending”, the minutes said.
Both issues were addressed in last week’s Financial Stability Report, when banks were told to continue building up their capital levels and liquidity regulations were relaxed slightly instead of suspended. Analysis of the report showed that easing the liquidity rules could release as much as £150bn for lending to small businesses and households.