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BoE's Bailey warns UK banks need more capital
Some of Britain’s banks need more capital to achieve financial stability, Andrew Bailey, the incoming deputy governor of the Bank of England who will take charge of regulating the country’s banks, has warned.
Questioned by the Treasury Select Committee during his appointment hearing, Mr Bailey hinted that bailed-out banks Lloyds and RBS would need to raise more money – though he was quick to add the Government has not been asked to inject cash into the part-nationalised lenders.
Mr Bailey, who will take charge of prudential regulation at the Bank on April 1, with a remit of safeguarding financial stability, is due to present a report on the capitalisation of Britain’s banks next week.
“I agree there is a need to strengthen the capital position, but I am not going to go into detail,” he told MPs, who suggested the figure could be as high as £50bn.
His words echo other Bank officials who have said the capital shortfall at UK banks is significant. Sir Mervyn King, outgoing governor, called the gap “material” while Michael Cohrs, a member of the Bank’s Financial Policy Committee, called it “a big number”.
While Mr Bailey assured MPs he had not asked the Government to put capital into RBS or Lloyds, he hinted such measures might be necessary should the banks fall short on capital reserves when they are returned to the private sector.
“If and when plans are put in place to take the banks back into the private sector then of course the state in which they go back is one where they meet prudential conditions,” he said.
Lloyds and RBS have been aggressively selling off non-core businesses in the wake of the banking crash to build up capital reserves. RBS on Wednesday sold a 17pc stake in Direct Line for £507m, having floated 34.7pc of the insurer in October.
Mr Bailey also warned on issues impacting the insurance sector, which will also come under his regulation remit when he becomes deputy governor next month. He criticised the escalating costs of implementing the EU’s Solvency II rules, which aim to create a single regulatory regime for insurers. Mr Bailey told MPs he understood the project could cost “twice as much” as £14.8bn infrastructure project Crossrail, and may increase costs for policyholders by “several billion pounds”.
He said there was consensus the banks needed to "strengthen their capital position" but declined to provide a figure, adding that the government has not been asked to inject cash into part-nationalised lenders RBS or Lloyds.