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LONDON – Amid the furore over bankers’ 2010 bonuses, the Bank of England is telling banks that they should not only take advantage of current favourable market conditions to raise new capital, but also conserve capital by reducing staff costs and cutting dividends. While it is not yet clear by how much base capital might need to increase as a consequence of all the new regulatory requirements now in the pipeline, it is likely to be “significant,” the Bank warns in its latest Financial Stability Report, published in mid-December.
Reducing staff costs by around one tenth and dividend payout rates by around a third would allow British banks to increase retained reserves by close to
£70 billion ($113.7billion)over the next five years, the central bank calculates. This would boost core Tier 1 ratios by 100 basis points over the same period, it says.
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