UK Banks still vulnerable

The Bank of England's Financial Policy Committee says that the UK's big banks do not have enough capital "to ensure resilience in the face of the prospective risks". So it is advising them to raise external capital as protection against possible future losses "as early as feasible".

The Bank of England wants banks to reinforce their protection against shocks because it fears the Eurozone crisis has only been temporarily abated by the trillion euros of emergency three-year loans provided to European banks by the European Central Bank. The Bank of England says that "questions remained about the indebtedness and competitiveness of some European countries".

It warned banks with large exposures to the likes of Italy, Spain, Portugal and Ireland - where risks of "persistent low growth and potential credit defaults remained high" - to be "particularly alert to the need to build capital".

Barclays has the biggest retail banking exposure to Spain and Italy of the UK's banks. So there is likely to be considerable debate between Barclays and its regulators about whether it has sufficient capital as a protection against what might go wrong in those economies or not.

APA sees Q3/2012 as a critical period in the financial stability of the UK. More later.

APA