Five months ago, the Bank of England’s Financial Policy Committee (FPC), worried that investor confidence in Britain’s banks was deteriorating, ordered a thorough review of lenders’ balance sheets to work out how much more capital they might require to rebuild trust.
Yesterday, the FPC reported back, saying that it had found a £25bn capital shortfall among the country’s largest banks that would have to be filled by the end of the year.
Hours before the FPC made its statement, the Institute of Economic Affairs (IEA), the think tank, released its own report calling for regulators to give up entirely on the idea of prescribing how much capital banks should hold.
The IEA argues that banks are the best judge of how much capital they need and points out that, instead of trying to make banks safer, the system would be improved by coming up with ways to make the failure of a lender a smoother process.
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