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(EstateNewsWire.com, December 06, 2012 ) Manchester, U.K -- The Bank of England gave a harsh and unmistakable warning when it told the U.K. Banks that they will have to raise “material” amounts of capital or sell off businesses.
The warning shot comes as the Bank of England tries to reign in bad loans and remove shady accounting techniques that are causing investors to be wary of credit flow.
A panel of central officials known as the BOE Financial Policy Committee stated that banks and building societies could be affected by overstating their true capital levels. By doing so, the banks underplay risks and post up false confidence in investors, which the investors are now become wise to, and thus wary of.
The banks may be falsely bolstering their failings as they do not put aside enough money to cover compensating costs. This can prove devastating as often customers are sold unsuitable product and fines for rate-fixing and misdemeanors. With the perfect storm of a run on banks, there could be an inability to keep up with bank's promises.
"In judging whether banks are adequately capitalized, we need to ensure that reported capital ratios do in fact provide an accurate picture of a bank's health. At present there are reasons to think that they do not," BOE Governor Mervyn King told reporters.
As for the effects on England's banks, it is still unclear. The committee has not hold within it any powers that allow it to pass legislation or rule sets. Its suggested actions that were given to the Financial Services Authority, but the actions have not been implemented or regarded in any official term.
The FSA is currently discussing several bank-related problems, according to a spokesperson. There are three primary regulator issues: The prudential valuation of assets, the transparency of risk-weighting models, and the way in which banks provide for customer redress.
King stated that needs of individual banks would "vary enormously," but that the problem is "manageable." He stated that taxpayers would not be required or asked to inject more cash into companies like Royal Bank of Scotland Group or Lloyds Banking Groups PLC, who are both partially owned by the government.
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