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Banks Warned to Build Up Capital Reserves

Fri, 23 Oct 2009

The Financial Services Authority (FSA) has warned banks which have made massive profits in recent months that they will be taking a hard line on how that money is used. After Goldman Sachs reported their biggest ever bonus pot, the FSA has warned banks that it will be demanding that money is used to build up capital rather than to give their staff exorbitant bonuses.

The warning comes in advance of new rules from the Basle Committee on Banking Supervision set to be introduced next year. The rules will impose significantly higher capital ratios across the banking industry, giving banks a proper cushion against future economic downturns. Banks will also be asked to draw up 'living wills' as part of a pilot scheme this year, which is designed to set out how banks would recover in the event of a crisis.

There has been public anger at the speed at which banks have restored the bonus culture in the industry. A number of banks received government funding to help them through the credit crunch, though most of these banks have failed to pass on the benefits of this to savers in the form of improved interest rates on savings accounts and ISAs .
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