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'Big Four' UK banks may need shoring up

BoE governor King says problem “manageable” but action needed

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Bank of England governor Sir Mervyn King has said the UK’s four biggest banks may need £5 billion to £35 billion of new capital to protect against potential future losses but described the issue as “manageable”.

Presenting the UK central bank’s Financial Stability Report on Thursday, King said, "UK banks currently report substantial buffers over the minimum level allowed…But, in judging whether banks are adequately capitalised, we need to ensure that reported capital ratios do in fact provide an accurate picture of banks' health. At present there are good reasons to think that they do not."

He named Barclays, RBS, Lloyds and HSBC as the four in question but added that if action is taken the problem is "manageable".

The Bank of England said there were three reasons why it felt the banks' capital ratios were understated.

"First, expected future credit losses may be understated. Second, costs arising from past failures of conduct may not be fully recognised. And third, the risk weights used by banks in calculating their capital ratios may be too optimistic," King explained.

The governor also said rising costs related to banking scandals also needed capital allocation. Barclays faces multiple investigations in the UK and US, while all four are facing domestic claims for payment protection insurance (PPI) mis-selling.

As a consequence, the Bank of England is worried that the big four "could face additional sizable costs."

The Bank of England will be granted greater oversight responsibilities over UK banks from next year with new governor Mark Carney at the helm and when it takes over the Financial Services Authority (FSA). Ensuring compliance with capital adequacy requirements would be one of its functions.


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