Sir Mervyn said uncertainty over financial resources had hit confidence in banks
UK banks need to build up their financial buffers to protect against potential future losses, Bank of England governor Sir Mervyn King has said.
There is good reason to think that banks have overstated the strength of their balance sheets, he said.
Inadequately capitalised banks hold back economic recovery and undermine investor confidence, he added.
Capital buffers absorb losses from outside shocks, like eurozone troubles.
Sir Mervyn was speaking as the Bank unveiled its twice yearly Financial Stability Report, which called on the Financial Services Authority (FSA) to ensure banks gave an accurate picture of their financial health.
The primary concern of the Financial Policy Committee, which will take charge of British bank regulation from next year, “has to been to ensure that UK banks have sufficient capital to underpin the resilience of the banking system so that they are on a solid footing to support economic growth,” he said.
“In judging that banks are adequately capitalised we need to ensure that the reported capital ratios are in fact an accurate picture of bank health.
“At present there are good reasons to think that they are not. That uncertainty around capital adequacy is in part responsible for low investment confidence in banks.”
The FSA should “ensure that firms either raise capital or take steps to restructure their business and balance sheets in ways that do not hinder lending to the real economy”.
UK banks 'may need more capital' http://news.bbcimg.co.uk/media/images/64406000/jpg/_64406133_mervyn.jpg
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