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Lenders face tougher checks on capital

Banks will see their calculations of how much capital they hold checked by auditors for the first time under new plans to be set out this week.

The Financial Times reports the Institute of Chartered Accountants in England and Wales will publish proposals this week which would see auditors review how banks work out their levels of capital and how risky the assets they hold are. 

Banks in other countries, including Australia, Switzerland and Germany, already have their capital calculations assessed by auditors.

Royal Bank of Scotland and Bank of America admitted earlier this year they had overstated their capital in stress tests.

ICAEW financial services head Iain Coke told the newspaper: “There is a lot of subjectivity in the capital rules for banks. The ways they implement those rules may be as strong as they might be. We are hearing more investors and analysts raising concerns about this.” 

The Prudential Regulation Authority will publish the results of its first stress tests of the eight biggest UK lenders tomorrow.

The Co-operative Bank is the only lender expected to fail the stress tests, which assess the level of capital lenders would hold if there were to be a 35 per cent fall in house prices and a rise in unemployment and interest rates. 

Lloyds Banking Group needs to pass so that it can carry out its pledge to resume dividend payments next year.

The Bank of England declined to comment.

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