Britain's banks have been given a stark warning today from the Bank of England's Financial Policy Committee Friday after it called on the country's biggest lenders to raise more capital to protects savers - and the overall banking system - in the event of a global economic recession.
The FPC - which will become the country's top financial advisor and watchdog next year - even asked that the government should force banks to comply with the recommendation if they resisted.
"Immediate financial-market tensions had subsided somewhat, but the overall outlook for financial stability remained fragile," the BoE said. "Questions remained about the indebtedness and competitiveness of some European countries. Banks with large exposures to those countries ... should be particularly alert to the need to build capital."
The FPC said it "remained concerned that capital was not yet at levels that would ensure resilience in the face of prospective risks."
The committee, which will provide guidance to the UK Treasury as it restructures banking regulation in the aftermath of the worst industry crisis on record, is also seeking more powers from government to carry out its task next year - although it did not seek authority to intervene directly into the nation's mortgage and housing markets.
The capital call was met with caution from the British Bankers' Association, which has said higher capital demands need to be offset with the necessity for banks to lend into a fragile British economy. The BBA also stressed that lenders were "well on the way to meeting Basel III requirements" for capital adequacy after cutting costs, trimming dividends and raising cash in the bond and equity markets over the past two years.
Four of Britain's biggest banks: HSBC, RBS, Barclays and Lloyds are comfortably past the internationally-accepted 7 percent minimum set by the Basel III accord last year.
Most of the large UK banking shares rose after the FPC statement, which came at mid-day London time Friday, with Lloyds gaining around 1.4 percent in the afternoon session and Barclays jumping 2.2 percent.