RBS responds to Bank of England's capital shortfall warning

The Royal Bank of Scotland (RBS) said its capital position was strong after the Bank of England warned major UK banks need to fill a 25 billion pound capital shortfall.

"RBS has a strong capital position (...) we will continue to work with our regulators to ensure RBS remains at the forefront of international capital standards," the bank said.

The announcement was in response to a statement from the Bank of England's Financial Policy Committee (FPC) on Wednesday, which expressed concern about whether banks were making "realistic" assessments of the amount of capital they hold.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The FPC said banks and building societies need to raise extra capital by the end of 2013 to cover the risk of a cumulative £50bn reduction in their regulatory capital over the next three years.

Extra capital is needed for bad loans and fines as well as for the adoption of a more prudent approach to risk-weights in the banking book, it said.

Investec said it believes the FPC's statement is to have little effect on banks.

"Do not be misled by the headline of a '£25bn capital shortfall'; we expect it to have a very limited impact on the banks' existing capital plans," the broker said.

"Importantly, there is no trigger for any fresh equity issuance, with a new recommended end-2013 capital target of '7.0% of risk weighted assets', albeit after making higher allowance for future credit and redress costs and a more prudent calculation of risk weights."

Shares fell 2.94% to 277.60p at 16:03 Wednesday.

RD