British banks told to raise capital buffers by $38 bln

LONDON

Britain’s Chancellor of the Exchequer George Osborne tours a factory of train wheel manufacturers Lucchini UK, at Trafford Park in Manchester, England. REUTERS photo

Britain’s new banking regulator recommended today that the nation’s lenders increase their capital buffers by 25 billion pounds ($37.9 billion) by the end of the year to ensure they can cover potential losses and keep lending in the event of future crises, The Associated Press has reported.

The Financial Policy Committee said banks need the money is needed as a buffer against potential costs of high-risk loans, including those in the eurozone, and of resolving scandals - such as the mis-selling of insurance products, which has forced British banks to pay billions in compensation to customers. The banks also need greater rainy-day funds in case they have to write down the value of their investments. Some banks already have adequate resources and those that don’t should either sell shares or restructure their businesses. The aim is to have capital equal to at least 7 percent of higher-risk assets by the end of this year, the committee said. It did not name any banks, or single out the ones that need more capital.

The committee, which is part of the Bank of England, also recommended applying higher capital requirements to any major British bank or building society with exposure to particularly weak investments.

The committee was set up to regulate the health of the banks following the 2008 financial crisis.

Separately, Britain’s economy contracted by 0.3 percent in the final quarter of 2012, official data confirmed.

“U.K. gross domestic product (GDP) in volume terms was estimated to have decreased by 0.3 percent between the third and fourth quarter of 2012, unrevised from the previous publication,” the Office for National Statistics said in a statement.

Should official data due next month show that Britain’s economy also shrank in the current first quarter of 2013, then the country would technically enter its third recession since the 2008 global financial crisis, Agence France-Presse reported.

 The ONS added that British GDP rose by 0.3 percent overall last year.