Bank of England urges banks to strengthen reserves

The Bank of England's financial policy committee says banks must raise capital to withstand the downturn, particularly that caused by eurozone debt problems. The governor of the Bank of England, Sir Mervyn King, said they needed to build up their capital buffers further to protect against an "exceptionally threatening" environment. He also said this could involve raising capital by issuing new shares. He also said banks should keep lending, but should cut dividends and bonuses. The committee said said the eurozone debt crisis remained the biggest threat to the UK's banking system. Sir Mervyn told a news conference that the Bank was making "contingency plans" in case of a break-up of the eurozone, although he said that he would not go into any details as to what these were. He added that the UK's banks were among the strongest in the world, with tier 1 capital ratios - an internationally respected measure of a bank's strength - at well above 12%. That is higher than they were before the credit crisis began in 2008.