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* FPC will consider action on bank risks in June
* Banks fear UK will push ahead of global initiatives
* FPC says investors may have "too rosy" view on markets
By Huw Jones
LONDON, April 5 (Reuters) - Britain's banks must addresspersistent doubts among both investors and regulators abouttheir capital adequacy ratios by tightening up the way theyquantify risk, the Bank of England said.
The Bank of England's Financial Policy Committee (FPC) saidit will discuss at its next meeting in June whether banks shouldbe forced to add up risks in two different ways, which couldbump up costs.
Global and European regulators have found wide variations inhow big banks quantify risks to determine their capital adequacyratios.
"The Committee agreed that a line needed to be drawn underdoubts about UK banks' capital adequacy," the FPC said inminutes of its March meeting published on Friday.
The committee discussed requiring banks to reportrisk-weighted assets using both their bespoke in-house modelsand the so-called standardised approach, which requires usingratings from outside credit rating agencies.
"This would provide greater transparency for investors and aplatform for banks to communicate more clearly about the factorsdriving their risk weight calculations."
The global Basel Committee of banking supervisors is lookingat possible reform later this year and UK banking officials fearthe FPC could "front run" what Basel recommends.
The FPC said it will evaluate in June if "further action wasappropriate in the light of these related initiatives".
Andrew Bailey, chief executive of Britain's new bankingsupervisor, the Prudential Regulation Authority at the BoE, hascriticised banks for "outrageous gaming" of risk weights.
UK banks already have to hold more capital to covercommercial property, irrespective of what models show.
Gary Greenwood, an analyst at Shore Capital, said the FPCwas trying to give critics of in-house models comfort but therewas no perfect way to calculate bank capital.
"It's up to the regulators to sign off on internal models sothey should not have agreed to them in the first place. It's abit of backtracking by regulators trying to point the blameelsewhere," Greenwood said.
A greater reliance on the standardised approach would fly inthe face of global efforts to scale back on banks' heavyreliance on credit ratings after agencies gave high ratings tosome assets which turned "toxic" in the financial crisis.
The FPC also said Britain's banks needed to keep up a tightrein on paying bonuses and dividends as they build up capital.
Last week, the FPC told Britain's banks they must raise 25billion pounds of extra capital by the end of the year to absorbany future losses on loans.
But some FPC members worried that the extra capital bankswere ordered to hold might not be enough and "were inclined toput in place additional upfront insurance," the minutes said.
Recent stock market gains partly reflect "exceptionally"accommodative policies by many central banks and marketsentiment "may be taking too rosy a view of the underlyingstresses", the FPC cautioned.
