Bank sector's £25bn 'black hole'

The banking sector has to fill a £25 billion "black hole" in its reserve funds that are needed as a cushion against future crises, the Bank of England has warned.

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BoE: Banks capital shortfall not an 'immediate threat'

Far from reducing lending, today’s recommendations will support lending and promote growth.

A weak banking system does not expand lending. The better capitalised banks are the ones expanding lending, and it is the weaker capitalised banks that are contracting lending.

The meeting of these recommendations does not require additional public funds. Banks can meet the recommendations in other ways such as through restructuring.

The shortfall of capital, which the FPC has identified today, is not an immediate threat to the banking system and the problem is perfectly manageable.

– Sir Mervyn King, Governor of the Bank of England

Cable: Banks £25bn 'black hole' filler plan is wrong

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.

Vince Cable said the plan would slow the pace of the UK's economic recovery Credit: Stefan Rousseau/PA Wire

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.

Read: The Bank of England's 'black hole' number crunching

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What is the role of the new Financial Policy Committee?

  • 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.

Read more: How big is the "banking black hole"?

UK banks to be warned over capital

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.

Extent of 'banking black hole' to be revealed

City of London
Banks are still heavily weighed down by the costs of what went wrong during the crash. Credit: Ian West/PA Wire/Press Association Images

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.

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