THE UK’s ‘big four’ banks face a financial black hole of up to £60bn from regulatory demands, hidden losses, and potential mis-selling costs that threaten to jeopardise future growth, the Bank of England has warned.
In its Financial Stability Report (FSR), the Bank revealed that RBS, Lloyds, Barclays and HSBC may need to take £15bn of extra provisions on consumer loans and European debt, ‘a further £4bn-£10bn’ to cover fines and customer compensation, and ‘between £5bn and £35bn’ to meet regulatory risk standards.
Royal Bank of Scotland could be forced to explore the sale of businesses considered ‘core’ to its operations after the Bank of England increased the pressure on lenders to raise new capital.
Following last week’s meeting of the Financial Policy Committee (FPC), the central bank decided that regulators from the Financial Services Authority should be sent into banks and building societies to ensure losses are properly declared by March next year.
The Bank declined to put a single number on the scale of potential recapitalisations, stressing that it would depend on the FSA judgement on each individual bank.
Bank Governor Mervyn King warned that banks may have to ‘raise capital or take steps to restructure’.
He stressed: ‘The danger to be avoided is that of inadequately capitalised banks holding back our recovery.’
The report warns that investors have lost confidence in the banks due to their ‘complex and opaque’ numbers and, to recover their trust, banks need to set aside capital for ‘expected losses’ and for potential compensation and fines over customer mis-selling, money laundering and Libor rate rigging.
In his opening remarks at a press conference to launch the latest report, King said that: ‘The underlying picture for global growth remains weak, and significant adjustments in indebtedness and competitiveness are still required in the euro area. Inevitably, that has implications for our own banking system and economy.’
King warned: ‘The problems facing the world economy are not ones that we or other UK authorities can resolve alone.’
He concluded: ‘The choice we face is to tackle the situation head on, which will be difficult and in some quarters unpopular, or to suffer a prolonged period of adjustment in which an inadequately capitalised banking system holds back recovery in the wider economy.’
