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* BoE's bank recap plans to be completed this month
* Bailey says RBS, Lloyds not getting off scot free
* Bailey says may need to check leverage ratios at banks
By Huw Jones and David Milliken
LONDON, June 3 (Reuters) - Work on mapping out how Britain'sbanks must plug a 25 billion pound capital hole will not behurried but should be done within weeks, Britain's top bankingregulator said on Monday.
Andrew Bailey, chief executive of the Prudential RegulationAuthority (PRA) at the Bank of England, also sought to head offcritics who accuse him of being too slow, opaque, and allowinglenders to avoid raising fresh capital.
"I make no apology for doing this quietly. I am much moreinterested in the outcomes than the running commentary," Baileytold the Society of Business Economists' annual dinner.
"As we near the end of a timely but not rushed process, wewill be communicating in the next few weeks the headline resultsof this work," added Bailey. The work is expected to becompleted this month.
Bailey also said latest lending figures from banks using thecentral bank's Funding for Lending Scheme (FLS), offering cheapfinance if banks maintain or increase lending to home-buyers andbusinesses, were better than they appeared at first glance.
"Net lending in the UK was broadly flat in the second halfof last year, and is expected to be up modestly in the remainderof this year. This compares with an expectation prior to thelaunch of the Funding for Lending Scheme that net lending woulddecline over last year and this," he said.
The FLS data showed that net lending has fallen by 1.79billion pounds since the launch of the scheme, despite banksdrawing down more than 16 billion pounds of cheap funding.
Last month the FLS was extended to give banks greaterincentives to lend to small businesses, and Bailey said therewas a particular problem for some firms as banks switched fromlending based on a firm's real estate assets to lending based onestimated future cash flows.
"As well as our part in creating the right incentives forcredit to be on offer, there is a need to ... (consider) creditassessments, and the issue of whether some types of commercialproperty are acting as a restraint on access to finance."
LENDING SHORTFALL
Banks have argued they cannot build up capital and lend moreto the sluggish UK economy but Bailey said additional capitalsupported lending by making the banks stronger.
"Equity finances the provision of loans to households andcompanies," he said.
The PRA has translated the 25 billion pound capital gapidentified earlier this year into firm-by-firm numbers, but ithas not made these public.
This follows a recommendation in March by the central bank'sFinancial Policy Committee for banks to plug shortfalls by theend of this year. Existing plans, such as selling off assets,already covered half the deficit.
Britain is keen for banks to stand on their own feet afterits taxpayers had to shore up the sector and take stakes inLloyds and RBS.
The aim is for eight banks - Lloyds, RBS, HSBC,Barclays, Nationwide, Santander UK, Co-op andStandard Chartered to have core capital equivalent to 7percent of their risk-weighted assets.
HSBC, Standard Chartered and Santander are not expected toneed more capital to meet PRA requirements, while any shortfallsat Barclays and Nationwide should be easily filled. The Co-opremains as having to take more significant action.
Hitting the 7 percent ratio would mean the lenders meet theglobal Basel III minimum rules five years ahead of time.
The PRA has endorsed plans from RBS and Lloyds, causingsurprise that the two were not required to raise new capital.Bailey said that selling assets was just as acceptable forboosting capital levels, as the two banks are doing.
