U.K. lenders' capital base was not yet at levels that would ensure resilience in the face of prospective risks, the Bank of England's Financial Policy Committee said at its March 16 meeting.
It advised banks to raise external capital as early as feasible. Also, lenders need to continue to restrain cash distributions, including via share buybacks.
The outlook for financial stability had improved in the near term. Although immediate financial market tensions had subsided somewhat, the overall outlook for financial stability remained fragile, the committee judged.
The European Central Bank's long-term refinancing operations had improved confidence in European banks' funding positions. That had had positive spillovers for UK banks.
The committee identified a key risk faced by many financial institutions as they typically borrow funds on a short-term basis and lend it over a longer-term. Committee members agreed that it was likely to be desirable in due course to have powers of Direction over an instrument that would tackle the build-up of such vulnerabilities.