British banks ended last year with a £25 billion ($37.92 billion) capital shortfall, an amount they will have to make up this year, the Bank of England said Wednesday.
The British central bank, which wants to ensure that commercial banks in the country have enough money set aside to absorb losses, requires banks to maintain at least 7 percent of their total assets in such secure forms as equity capital and disclosed reserves. That percentage is commonly referred to as a bank’s Tier 1 capital ratio.
The Bank of England did not disclose which banks did not have a sufficient Tier 1 capital ratio.
Banks can raise their Tier 1 capital ratio by increasing retained earnings, issuing more stock and selling assets.
The Bank of England said banks whose Tier 1 capital ratios are not at 7 percent or greater must “either raise capital or take steps to restructure their business and balance sheets in ways that do not hinder lending to the real economy.” Having a Tier 1 capital ratio at that level raises the likelihood that banks can “absorb losses and sustain credit availability in the event of stress,” the Bank of England said.
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