Bank of England says British banks need fresh capital

Thrugelmir

Anybody still believe that lenders are going to relax their criteria any time soon.

British banks needs to raise fresh capital as soon as feasible, according to a new Bank of England regulator.

Although banks have been bolstering their finances, they still do not have enough funds in reserve to withstand potential financial trouble, the Financial Policy Committee (FPC) said.

The FPC said it would review progress made by banks at its next meeting in June.

Next year, the FPC will gain legal powers to order banks to take action.

http://www.bbc.co.uk/news/business-17486126

TruckerT

The spring is sprung, the grass is riz, I wonder where the bankers is

TruckerT

ManAtHome

DMO->Bankstas->BoE - just multiply capital required by 25 to get additional QE.

pqrdef

ManAtHome wrote: »

DMO->Bankstas->BoE - just multiply capital required by 25 to get additional QE.

Selling assets for cash doesn't increase capital, only liquidity. They need to issue new shares or bonds. Good luck with that.

chewmylegoff

pqrdef wrote: »

Selling assets for cash doesn't increase capital, only liquidity. They need to issue new shares or bonds. Good luck with that.

Maybe the government will buy the shares. Again. Groan.

wotsthat

Thrugelmir wrote: »

Anybody still believe that lenders are going to relax their criteria any time soon.

It's bad news for anyone hoping for anything other than a continued gradual relaxation of criteria. It's also bad news for anyone that isn't on a fix or BoE linked mortgage - better get ready for their lender to come a knocking.

chewmylegoff

How is the banks needing to raise more capital a signal that mortgage lending criteria will be gradually loosened? If anything it would go the other way. The easiest way to increase your capital ratio is to stop lending.

wotsthat

chewmylegoff wrote: »

How is the banks needing to raise more capital a signal that mortgage lending criteria will be gradually loosened? If anything it would go the other way. The easiest way to increase your capital ratio is to stop lending.

It isn't. It's not what I meant.

There are already signs of a very gradual loosening. I expect this to continue even with increased capital requirements but clearly it puts lending under even more pressure.

The other way to increase capital ratios is to improve margins. SVR customers remain easy targets.

Graham_Devon

If as you say it's going to put lending under more pressure, why do you think at the same time, mortgage lending will continue to loosen!?

Graham_Devon

Peston has a blog on this. Amongst it is a plea from the BOE to have more powers over the new regularatory bodies to:

1. impose higher across-the-board capital requirements in boom years (what's known as a counter-cyclical buffer);
2. set specific targeted higher capital requirements for sectors that are overheating (such as property lending, for example); and
3. reduce the ceiling on the amount of gross lending a bank can make relative to their capital when the risks in the system as a whole are becoming excessive (a cap on the leverage ratio).

They also see a case for them to be able to impose ceilings to the amount any lender can provide for a mortgage relative to the amount of earnings of the borrower or relative to the property. i.e. no messing about, but a simple multiplier.

It wants to prohibit 100% home loans to no greater than 2 or 3 x salary.

However, it knows it would come under fire for this, as the population wouldn't like it, therefore they are going to kick off debate on the subject.

The Bank of England is worried that its reputation would not be enhanced if it was seen as the killjoy restricting every British person's fundamental freedom to borrow more than he or she can afford.

So the BOE knows there a problem, but it doesn't want to be seen as the one ending the party.

Interesting stuff. Some will absolutely detest it.

Thrugelmir

Graham_Devon wrote: »

Interesting stuff. Some will absolutely detest it.

Seems many have already vacated the board.

Really there's no surprise in the BOE's views. As the consequences of the lending boom 2003-2007 when mortgage debt doubled by around £600 billion. Based entirely on raising funds by the securitisation of mortgage debt.

Now the boomerang is coming home. As wholesale markets contract as all banks seek to strengthen their own balance sheets.