* Prudential Regulation Authority sets new curbs on sector
* Finds end-2012 aggregate capital shortfall of 27 bln stg
* Findings apply to RBS, Lloyds, Barclays, Co-op, Nationwide
* Five have already outlined plans to cut gap by 13.7 bln
* RBS accounts for just over half of shortfall
By Matt Scuffham and Huw Jones
LONDON, June 20 (Reuters) - Britain's banks will have toraise 13 billion pounds ($20.4 billion) of extra capital andmeet a new cap on lending ahead of international peers as theBank of England seeks to curb risk in the financial sector.
The combined balance sheet of Britain's largest banks isfive times the size of the economy, despite radicalrestructuring since the crash in 2008, and the country's centralbank fears many are still too big to fail.
Yet privately, some bankers are already complaining thathigher capital requirements and limits on leverage are hamperingtheir ability to lend in support of government efforts to boostthe fragile domestic economy.
The Prudential Regulation Authority (PRA), the Bank ofEngland's new banking regulator, said on Thursday there was anaggregate capital shortfall of 27 billion pounds at the end oflast year at Royal Bank of Scotland (RBS), LloydsBanking Group, Barclays, Co-operative Bank and Nationwide Building Society.
The five have already outlined plans to bring the gap downby 13.7 billion pounds and the rest will be raised via disposalsand restructurings.
Part-nationalised RBS accounted for just over half of theshortfall, some 13.6 billion pounds, underscoring the challengefacing Prime Minister David Cameron as he seeks to sell down thestate's 81 percent stake in the bank.
The government admitted late on Wednesday that a sale of itsstake in RBS was a long way off and said it would review thepossibility of splitting RBS, putting its toxic property loansinto a so-called "bad bank". Finance minister George Osbornesaid such a break-up should have happened five years ago.
Many people, including Osborne, have said previously thatcreating a bad bank for RBS would be too costly and one top-10RBS investor warned it could damage the wider economy.
"RBS's record on new lending in the UK mortgage market isalready very strong. It is possible that the capital strain of asplit could produce the reverse effect from that intended, thatis it could actually cause less lending to the UK economy," saidthe investor.
ABILITY TO LEND
The Bank of England also wants banks to meet tougher newglobal capital rules well before an international deadline of2019. And it set a "leverage ratio" of 3 percent for UK bankswith immediate effect, four and a half years before it is due tobe implemented globally, effectively limiting their ability tolend.
The leverage ratio measures capital against total loans, notadjusted for their supposed riskiness, and some bankers argue itpenalises low-risk, high-volume businesses like trade financeand mortgage lending, crucial to economic growth.
The PRA said Barclays and Nationwide fell short of therequired level with leverage ratios of 2.5 percent and 2percent, respectively, after adjustments. It said they mustsubmit plans by the end of this month to reduce leverage.
Barclays and Nationwide were the only firms whose net UKlending was more than 1 billion pounds in the first quarter.
A parliamentary commission on the banking sector, set up byOsborne last year, had recommended a ratio of 4.06 percent.
Barclays said its restructuring plans include a reduction inleverage "over time" and it would keep the market updated asrequired.
In its calculation of their capital requirements, the PRArecommended that Lloyds, 39 percent owned by the state, retainssome 12 billion pounds to cover potential future losses arisingfrom previous misconduct such as mis-selling products, thelargest of the all the main UK banks.
Osborne said late on Wednesday that the government was readyto start selling its shares in Lloyds.
Lloyds has already announced plans to raise 5.8 billionpounds in capital and on Thursday said it expects to meet itsadditional 2.8 billion requirement without needing to issuehybrid debt or shares.