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U.K. banks to require additional $38 billion in capital

125px-Flag_of_the_United_Kingdom.svgThe Bank of England said recently that U.K. banks need to come up with $38 billion in capital this year, putting pressure on RBS and Lloyds Banking Group to increase their asset sales.

Bank of England Governor Mervyn King, a member of the bank’s financial policy committee, said that the capital deficit is not “an immediate threat” but a “perfectly manageable” problem, according to The Wall Street Journal.

While it is unclear as to how the capital will be raised, Bank of England Deputy Governor Andrew Bailey said half of the required capital has already been accounted for in banks’ plans for the year. Lenders often boost their capital positions by issuing new shares, reducing assets and holding onto earnings.

RBS and Lloyds, which analysts have noted as having the most need for the extra capital after posting net losses last year, have been selling stakes in public companies and selling off loan portfolios. Lloyds is said to require nearly $4 billion in capital, while RBS will need to raise more than twice that amount, The Wall Street Journal reports.

Bank of England officials have urged banks for months to restructure and issue new shares but stressed that improvements should not come at the expense of new lending and the economy. Since 2008, lending has contracted in the U.K., leading to the country’s continued economic struggle.

“Far from reducing lending, today’s recommendations will support lending and promote growth,” King said, according to The Wall Street Journal. “A weak banking system does not expand lending. The better-capitalized banks are the ones expanding lending, and it is the weaker-capitalized banks that are contracting lending.”

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