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The Business Secretary Vince Cable has attacked the Bank of England's plans for Britain's banks to raise up to £25bn to strengthen their balance sheets.
In an interview with Sky News, he said: "The idea that banks should be forced to raise new capital during a period of recession is an erroneous one.
He warned that the ruling by the Financial Policy Committee will "prolong the time it takes for the British economy to recover by further depressing already-weak SME lending".
"I believe the weight of the argument is in favour of counter-, not pro-cyclical, lending measures, and I rather suspect that the new Governor of the Bank of England shares this view, he added.
- The Financial Policy Committee was set up on an interim basis last year, and is chaired by the Bank of England Governor.
- It is also the pillar of the new regulatory regime introduced by the coalition, which comes into force on April 1.
- The FPC will take the broadest overview of financial regulation in the UK and comprises a mixture of Bank of England staff and external experts.
- It will sit alongside the Prudential Regulation Authority and the Financial Conduct Authority.
The Bank of England is expected to tell the UK's banks they must raise more capital to absorb potential future losses.
It is the newly-created Bank of England's Financial Policy Committee (FPC) first big intervention since being set up by Chancellor George Osborne.
Under new rules, the FPC will tell banks as a whole to raise a specific amount of new capital.
The Bank of England's new Financial Policy Committee is set to announce the extent of the missing billions from the UK banking sector.
The ‘banking black hole’ is made up of toxic loans that the banks will never see repaid, underestimates of how much compensation banks will have to pay for past mistakes, or costs not yet fully understood from new rules and regulations.
At the end of December 2012, the Governor of the Bank of England suggested the banking black hole was as big as £60 billion - almost as much as the bail-outs for RBS and Lloyds.
Latest ITV News reports
The Bank of England has crunched its numbers and worked out the banking sector needs to fill a £25m 'black hole' in its reserve funds.
The Bank of England's new regulator has just revealed how much danger our banks are still in, and it is not pretty.