Barclays, the Co-Operative Bank, Lloyds Banking Group, Nationwide and the Royal Bank of Scotland have an aggregate capital shortfall of £27.1bn and have been told to raise almost £14bn, according to the Prudential Regulation Authority.
In an assessment to calculate capital shortfalls, following a Financial Policy Committee assessment, the PRA found that the shortfall was more than £2bn higher than its earlier £25bn estimate.
The PRA has judged that, after these adjustments have been made, each firm should target a risk-weighted capital ratio based on the Basel III definition of at least 7 per cent.
RBS needs to find £13.6bn of the total; Lloyds Banking Group accounts for £8.6bn; Barclays accounts for £3bn; the Co-operative is £1.bn short; and Nationwide accounts for £400,000. Other banks in the assessment were HSBS, Santander UK and Standard Chartered.
In a statement on the London Stock Exchange, Barclays said it is “confident” it will exceed this 7 per cent PRA-calculated ratio organically by the end of 2013 through its capital generative businesses.
Following the FPC’s announcement in March, five firms had in place plans to take actions that generated the equivalent of approximately £12.5bn of capital during 2013. The final figure for these actions is £13.7bn, the PRA said.
These firms have been required to submit plans for “additional actions”. All of the firms have been informed of their requirements and have produced for the PRA plans to meet them. It is for the firms themselves to announce the actions they plan to take.
The FPC also recommended that the PRA should consider applying higher capital requirements to any major UK bank or building society with concentrated exposures to vulnerable assets, where there are uncertainties about assets not covered in the FSA’s assessment of future expected losses or risk weights analysis, or where banks are highly leveraged relating to trading activities.
The PRA will hold firms to the plans they have agreed to deliver. The PRA will ensure firms’ capital positions accurately reflect the realities of their individual circumstances, including by using a regular process of stress testing.
