BoE Asks Banks to Beef Up Capital

British banks are required to raise more capital at the earliest as the strength of the worldwide financial markets remains weak, the Bank of England's Financial Policy Committee (FPC) said on Friday.

The FPC said that though pressures on financial systems have fallen in recent months, the outlook for financial constancy is still flimsy.

The European Central Bank's proposals for cheap three-year finances for banks have helped stabilise the financial markets but fear persists about the indebtedness and economic competitiveness of some European countries.

British banks have already done what they could to raise capital by keeping down pay, dividends and share buybacks, says the FPC. But the committee remained concerned that capital was not yet at levels that would ensure resilience in the face of prospective risks. Banks are therefore advised to raise external capital as early as possible.

The FPC has listed three initial sets of authorities in which it wants control to order banks to increase or decrease capital buffers to smoothen out swings in credit supply. Secondly, the power to set capital requirements to cool specific sections of the lending market and finally, the right to change banks' overall leverage ratio - effectively how much they can lend in all.

On the other hand, while commenting on the British economic outlook, the BoE policymaker Martin Weale said: "The UK economy probably showed some development in the first three months of the current year, but distraction due to the Queen's Jubilee celebrations and the Olympics will make it complex to gauge activity." Weale also said in an interview with the Bath Chronicle newspaper on Friday that he estimated standard economic performance to restart over the medium term.

Weale said he thought Britain would avoid an economic downturn, and notice some development in the first three months of this year though activity could be unstable later in the year. "In the first quarter of this year things have been better than anticipated. I think it's more likely than not that growth will be positive," added Weale.