UPDATE 2-BoE's Bailey says some UK banks need more capital

* Bailey says not asked government to help banks

* UK banks seen hiking basic pay to avoid EU bonus cap

* Bailey says single market threatened by many EU rules

* Insurers "not second class citizens" in BoE pecking order

By Huw Jones

LONDON, March 13 (Reuters) - Some of Britain's banks needmore capital but the government has not been asked to put cashinto Royal Bank of Scotland or Lloyds, the UK'stop banking supervisor said on Wednesday.

Andrew Bailey is due to present a report on thecapitalisation of UK banks to the Bank of England's FinancialPolicy Committee (FPC) next week.

"I agree there is a need to strengthen the capital position,but I am not going to go into detail," Bailey told parliament'sTreasury Select Committee.

"I have not asked the government to put capital into RBS orLloyds," said Bailey, who has been appointed a deputy governorof the Bank of England, in charge of prudential regulation.

The restructuring of banks should be a precursor to raisingmore capital, he added.

Bailey has had "conversations" with RBS about itsrestructuring in preparation for possible full privatisation ofthe government's controlling stake in the bank.

The FPC is due to make a statement on March 27.

Bailey has also been confirmed as chief executive of theBank of England's Prudential Regulation Authority, Britain's newbanks and insurance supervisor from April 1 when the FinancialServices Authority is scrapped.

EU RULES

Turning to bankers' bonuses, he said that Britain's mainbanks could bump up fixed pay for top staff by 500 millionpounds to get around a proposed European Union cap.

The EU is finalising a new law that would limit bonuses tono more than fixed salaries, with the option of increasing thisto up to double fixed salary salaries if shareholders give theirapproval.

"It's being driven by popular anti-bank sentiment," Baileysaid of the proposed cap. "It won't have the effect of reducingoverall remuneration."

Increasingly detailed and prescriptive EU rulemaking is oneof the biggest threats faced by UK regulators, making it harderfor them to use judgement, Bailey said.

"That is the biggest tension I observe. There is no questionthe single market is fraying," Bailey said.

He also sought to reassure the insurance sector which hasworried it will be marginalised by the heavy focus on banks.

"We are very aware they thought they were second classcitizens in the Bank of England pecking order as banks take up avery large proportion of a regulator's time," Bailey said.

"I have gone out of my way to say they are not second classcitizens and the feedback I get is they understand that."

This year's levy on insurers to pay for supervising thephase in of the now delayed EU Solvency II insurance rules willtotal just 100,000 pounds, a fraction of the 15 million poundslevied last year, Bailey added.

He also criticised "outrageous gaming" by banks of theirin-house computer models for totting up risks to present a moreflattering capital ratio, a key indicator of soundness.