Banks told to set aside more cash to cover risks

Britain’s banks have been told they will have to increase the amount of capital they set aside to cover their investments in risky assets, as regulators try to ward off another financial crisis.

From the start of 2015, lenders must hold capital equivalent to 8 per cent of their “risk-weighted” assets, up from the target of 7 per cent that major banks and building societies must meet by the end of this year.

The Bank of England’s Prudential Regulation Authority (PRA), which supervises lenders, set out the target in a consultation paper on its proposals to apply European Union bank capital rules in the UK.

Andrew Bailey, the central bank’s deputy governor for prudential regulation, who is also chief executive of the PRA, said: “Well-capitalised and resilient firms are crucial for ensuring financial stability and supporting UK growth.

“The PRA has already acted to increase both the amount and quality of capital held by firms, reflecting our determination to improve the stability of UK firms after the crisis. This has put UK firms in a good position to meet the new requirements whilst continuing to provide banking services and support lending to the real economy.”

Regulators have also demanded that big banks hold capital worth 3 per cent of their loans, forcing Barclays to unveil plans for a heavily-discounted rights issue earlier this week. The group announced the move, which aims to raise £5.8 billion, because its so-called “leverage ratio” stood at 2.2 per cent, representing a £12.8bn shortfall.