Bankers
warned on
bonuses by
watchdog

The Bank of England’s Financial Policy Committee (FPC) last week suggested lenders could be misleading investors by failing to reveal the full extent of losses on bad debts or compensation bills, in particular for mis-sold payment protection insurance (PPI).

The FPC urged the regulator, the Financial Services Authority, to ensure banks and building societies accurately reported their capital reserves.

In the record of the FPC’s November meeting, the committee said if protective buffers needed to be strengthened then shareholder and staff payouts should be restrained.

The committee, chaired by Bank Governor Sir Mervyn King, was formed as part of a shake-up of the UK regulatory system.

The UK’s four biggest banks – HSBC, Lloyds Banking Group, Barclays and Royal Bank of Scotland – could need to increase their capital reserves by as much as £35bn between them, the FPC said.

Sir Mervyn, who will be replaced by Bank of Canada governor Mark Carney next year, said there were “good reasons” to believe that banks are not accurately reporting the level of capital buffers they hold.

“This uncertainty is responsible for low investor confidence,” he added.

The FSA is expected to start immediately asking banks to increase their capital buffers, which act as a cushion against shocks in the financial system and future crises.