Economic Update – Banks Reveal £26 Billion Capital Shortfall

The Co-operative Group, owners of Britain’s biggest mutual bank announced that it will seek privatisation after identifying a £1.5 billion capital shortfall in its accounts. The news was followed by an announcement by regulators that the major UK banks are believed to have in excess of £26 billion capital shortfalls on their balance sheets.

UK banks are in a dire state with weak balance sheets affecting their ability to provide loan finance to small and medium sized businesses. The major banks, including RBS, Lloyds and Barclays will undergo a period of recapitalisation until they can restructure their balance sheets.

The past 2 weeks have revealed some interesting news about the UK and global economy. The Fed announced that they intend to “taper” their Quantitative Easing programme which led to a 3% drop in the FTSE. The US stockmarket also saw a significant drop last week leading many to believe that the bull run in equities is over. The gold price fell below the $1,350 mark to a 2 and a half year low.