UK banks 'should build up cash levels', watchdog says

British banks must strengthen their balance sheets against potential future crises without damaging the wider economy, the British government’s new financial watchdog warned today.

Eurozone debt fears have made it harder for banks to hoard cash to prepare for the shocks ahead without choking off lending to households and firms, the Financial Policy Committee (FPC) said.

In its first meeting in June, the FPC said banks should build up cash levels when earnings are strong – but today admitted this may not always be possible given increasing risks to the economy.

The latest quarterly update from the FPC, set up to oversee the country’s financial stability in the wake of the credit crunch, comes after the International Monetary Fund (IMF) warned the eurozone debt crisis had added €300bn to the risk exposure of EU banks.