MarketLine Blog

Less scope for free market economics

The Prudential Regulation Authority was created to be an arm of the Bank of England and to promote the safety and the soundness of individual banks, building societies, credit unions, insurers and major investment firms. Ultimately, PRA will keep a very close eye on financial institutions to ensure that the bank bailouts of the last few years won’t happen again.

The authority set up a 3% leverage ratio threshold, which forces banks and building societies to have at least £3 of own capital to support £100 of lending. Interestingly, after completing a capital shortfall exercise in June, the regulation authority estimated that eight major UK banks and building societies in the country have a combined capital shortfall of £27.1bn.

As a result, Barclays has to raise £6bn via a rights issue. Royal Bank of Scotland has a gap of £13.6bn. Lloyds Banking group needs to raise £8.6bn and the Cooperative is short of £1.5bn.

Clearly, there is no scope for free market economics in the financial sector anymore. Britain’s economy has shrunk by more than 2% since the collapse of RBS. But, sadly, as the assessment of the PRA revealed, some major banks in the UK are still running wild.

For a SWOT analysis of Lloyds Banking Group, see the MarketLine ‘Lloyds Banking Group company profile‘.

For a detailed company analysis of Royal Bank of Scotland, check out the MarketLine ‘Royal Bank of Scotland SWOT analysis report‘.

Want more information on the UK banking industry? Check out MarketLine ‘Report on UK banking industry‘.

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