UK banks told to raise £25bn by year end UK banks have a collective capital shortfall of £25bn and must close it by the end of the year with new capital and restructuring, the UK's new financial stability regulator announced. The Financial Policy Committee said tough scrutiny of the way the banks were measuring risk and allocating capital to looming fines and expected losses had found banks were overstating their capital by £50bn. But half of that was in banks that already had more capital than required. Regulators believe that about half the £25bn shortfall is already covered by banks" capital plans for this year - to retain profits, shrink balance sheets and cut bonuses. The bulk of the black hole is thought to be concentrated in banks that are shrinking, predominantly the part-nationalised lenders Royal Bank of Scotland and Lloyds. However, the Bank of England has ruled out the prospect of additional public money being injected into either RBS or Lloyds after the government made clear in November it was not prepared to inject any additional taxpayer funds. The £25bn number is at the bottom end of the £20bn-£50bn the FPC suggested was the size of the capital shortfall in its initial assessment last November. Investors are likely to be reassured by that, though will remain jittery until there is clarity around the capital position of individual banks. The process, which will involve further work by the PRA, is expected to take several more weeks. The FPC, which is charged with spotting and defusing threats to the financial system, said supervisors should also consider even higher capital requirements for banks with concentrated exposures to risky areas or large trading books. If the Prudential Regulation Authority follows through, Lloyds, RBS and Barclays would probably be hit hardest by the extra requirements. The end of 2013 deadline for closing the capital gap is intended to allow the PRA to take banks" actions into account when considering whether to approve their bonus plans for the year. Sandy Chen, banks analyst at Cenkos, said the shortfall was at the "mid-range" of analysts" expectations and could spark a "relief rally." The banks are being judged against a ratio of 7 per cent core tier one capital as a proportion of risk-weighted assets under the incoming global Basel III rule book. The FPC now considers its capital exercise to be complete but urged the PRA to conduct regular stress tests modelled on similar US practice.