UK banks ‘need to build up buffers’

Financial trading professionals will have today (December 1st) heard the Bank of England (BoE) encouraging lenders in the UK to build up their capital buffers.

Sometimes referred to as the Old Lady of Threadneedle Street and founded in 1694, the body has recommended banks up these levels even further to counter the threat posed by rising economic uncertainty – a negative forecast that continues to be driven primarily by the debt crisis currently engulfing the euro zone.

The BoE's interim Financial Policy Committee explained institutes need to keep up their lending to the real economy, but exercise restraint in other areas.

These include the handing out of bonuses and dividends and can even stretch to the issuing of new shares.

Speaking at a news conference, governor of the BoE Mervyn King – who is also the committee's chairman – said: "It is sensible to raise the capital buffer further in order to improve resilience in light of the continuing threat to UK financial stability."

Mr King stopped short of providing specific targets, observing: "There is no simple answer to how much capital banks need to retain confidence."

It is hoped that such action will serve to give a timely shot in the arm to investor confidence and reduce the amount of debt that is set to mature across the first half of 2012.

By refraining from setting out specific goals, banks might not be tempted to sell off any of their units or to put an end to lending to businesses.

In addition, Mr King noted no time should be wasted with regard to the implementation of the ring-fencing of banks' retail and investment arms.

The recommendation – proposed by the recent Vickers Commission – has a deadline of 2019, but Mr King advised for this to be put into practice as soon as possible.