BoE risk watchdog delayed disclosing bank capital details

LONDON, Oct 1 (Reuters) - The Bank of England delayeddisclosing how much more capital was needed in the Britishbanking sector in late 2012 because it feared there could be aloss of confidence, it said on Tuesday.

A summary of discussions by regulators about the risks oftalking publicly about insufficient capital levels without clearways to fix them was omitted from the minutes of a meeting ofthe BoE's Financial Policy Committee in November, the Bank said.

"There was a risk that if these factors were highlighted bythe Committee in public, without there being clear accompanyingactions, confidence in UK banks - and hence financial stability- could be adversely affected," the text began.

The FPC did publicly stress the need for more capital atbanks at the time of last November's meeting. Its members wereshown to be in broad agreement that banks had to bolster theirdefences against financial shocks after many underestimated thecost of loans going sour and future fines for misconduct.

However, according to the omitted paragraph which waspublished on Tuesday, the Committee agreed it would be "contraryto the public interest" to reveal its judgments about theoverstatement of bank capital positions across the sector.

The FPC was set up as part of a revamp of Britain'sregulatory system to try to prevent a repeat of the financialcrisis of 2008, when the government had to bail out some of thecountry's largest banks.

A core aim is to flag problems before they get out of hand.

In the originally omitted text, policymakers talked about anunnamed British bank which had issued contingent capitalinstruments and which was in talks with the now defunctFinancial Services Authority about issuing more.

In November 2012 Barclays raised $3 billion incontingent capital bonds that can be written off in a crisis.

The two banks in which the government has a big stake - RBS and Lloyds - had more limited options becausethe Treasury was "not minded" to inject more capital unless"absolutely necessary," although they were able to restructuretheir balance sheets and had state backing, the paragraph said.

"It was important that the FSA firmed up these initialindications with all of the individual institutions promptly, toensure that there was no ambiguity about what the FPC's generalrecommendation implied for each of them," it continued.

"The Committee agreed, however, that it would be contrary tothe public interest to reveal the broad quantitative judgmentsit had made with respect to the overstatement of banks' capitalpositions across the sector, or the FSA's indications of likelyactions that banks might take to rebuild their resilience, atthis point," the text said.