BoE - UK banks must keep tight rein on bonuses, dividends

LONDON, April 5 (Reuters) - British banks need to keep up theirmore conservative approach to paying out bonuses and dividendsas they build up their capital safety buffers, policymakers atthe Bank of England said.

"Banks should continue to exercise restraint ondistributions and compensation," the bank's Financial PolicyCommittee said in minutes of its March meeting which werereleased on Friday.

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.

Rebuilding banks' capital levels, after they were hit by the financial crisis and heavy fines for misconduct, is acrucial step for returning part state-owned lenders RBS and Lloyds to full private ownership by the 2015general election.

RBS and Lloyds and two other banks, HSBC andBarclays, dominate the market with 74 percent ofdeposits.

The minutes showed that some members of the FPC were worriedthat the extra capital banks were ordered to hold might not beenough and "were inclined to put in place additional upfrontinsurance."

FPC members are seeking ways to restore investor confidencein capital numbers disclosed by banks relating to risks theyhold on their books based on in-house models.

"The Committee agreed that a line needed to be drawn underdoubts about UK banks' capital adequacy," the minutes said.

They also showed the FPC was looking at whether banks shouldbe required to tot up risks using so-called standardised modelsas well as their in-house versions. It will discuss the topic atits June meeting to see if further action is appropriate. (Reporting by Huw Jones and William Schomberg)