THE Bank of England has warned that the biggest banks and building societies operating in Britain face a £120bn shortfall in their finances.
In a 414-page document, the central bank’s stability watchdog, the Prudential Regulation Authority (PRA), on Friday spelt out the costs of meeting a new diktat from Brussels, the EU’s Capital Requirements Directive (CRD IV).
It warned that 27 lenders and one building society, believed to be Nationwide, will have to boost their capital by £120bn between 2014 and 2019 to comply with the regulations.
An unspecified number of investment banks face a shortfall of between £27bn and £29bn in their capital.
Those affected include US giants Goldman Sachs and JP Morgan, which have large operations in the UK.
In total, 2,176 firms will be affected by the EU finance capital rules, introduced in the wake of the 2008 banking crash to provide protection against future losses.
The PRA estimates that the big deposit-taking banks face an annual cost of up to £9.5bn to comply with the new rules, but investment banks will have to find between £35bn and £43bn a year.
Last month the PRA revealed that eight of the UK’s biggest banks – including Barclays, Royal Bank of Scotland and Lloyds – have a combined shortfall in their ‘core’ capital of £27.1bn.
The EU wants banks to add another layer of protection, roughly tripling the amount of capital they must hold compared with before the financial crisis.
A PRA press statement said: ‘CRD IV is the EU package of rules and regulations which implements Basel III, the international regulatory framework for banks. The package is binding on all EU member states.
‘It aims to address the problems that caused the financial crisis by increasing the level and quality of capital held by banks, enhancing risk coverage, expanding disclosure requirements and reducing procyclicality.
‘CRD IV provides a basis for EU liquidity standards and introduces leverage disclosure requirements.’
It added: ‘CRD IV places greater emphasis on the highest quality of capital (known under CRD IV as Core Equity Tier 1) than the current regime, and strengthens the criteria used to determine what can be used as CET1.
‘The PRA supports this emphasis on high quality capital and has set out proposals in the consultation paper to ensure that this is reflected in the PRA’s implementation of CRD IV.
‘The PRA is also making enhancements to the quality of capital held against “Pillar 2”. This is intended to ensure that firms have adequate capital to support all the relevant risks in their business…’