UK regulator identifies £26bn bank capital deficits The top City regulator is poised to unveil the secret details of the capital holes it has identified at Britain's top eight banks, with Royal Bank of Scotland, Lloyds Banking Group and Barclays set to account for more than 90 per cent of the total. People familiar with the exercise by the Prudential Regulation Authority said RBS would be shown to account for as much as £10bn-£12bn of an aggregate £26bn hole, with Lloyds representing £8bn-£9bn of the total and Barclays accounting for £3bn-£5bn. The Co-operative Bank said last week that the PRA exercise had identified a £1.5bn capital hole at the mutual, triggering a radical restructuring of the lender's debt, involving exchanging up to £1.3bn of subordinated bonds for bank equity and debt in the wider Co-op Group. HSBC, Standard Chartered and Santander UK are expected to receive a clean bill of health in terms of the PRA's view of their capital position. Nationwide, the UK's leading building society, has a small deficit amounting to less than £1bn, according to people familiar with the exercise. Confusion has surrounded the capital strength of the UK's banks since the end of last year when the Bank of England's Financial Policy Committee published a report suggesting that the banking system was up to £50bn short of capital. The FPC later clarified that it felt loan loss provisioning could be as much as £30bn short of requirements, misconduct costs could end up costing up to £10bn, while risk-weighted asset underestimates could require a £12bn top-up. However, it toned down its aggregate shortfall to £25bn, adding that about £12.5bn of that was already in projected capital accumulation planned by the banks. The PRA - responsible for implementing the FPC's assessment at an individual bank level - has spent the period from March to now on in-depth work with each of the eight banks in question, pinning down precise requirements. The extended timeframe has led to a wide range of speculation from analysts over what the banks" real deficits look like. The first of the banks to be told of their deficits were RBS and Lloyds a month ago, although the regulator did not reveal the amounts, and the banks themselves merely issued statements promising capital-boosting measures. The banks" shares rose on the day, reassured that fresh equity or contingent capital would not have to be raised. Each bank was thought to have £3bn-£4bn of the overall £12.5bn deficit. Both banks are thought now to have only £1bn-£2bn more to find. The PRA's scheduled round-up on Thursday will finally make public the numbers for each bank, though on the basis of the "gross" £25bn shortfall. The numbers do not, therefore, factor in measures that have been taken this year or which are scheduled over the next 18 months. RBS said last month that it would use two key tactics to address its shortfall - the bank will shrink its investment banking business by a further 20 per cent; and it will float its US subsidiary, Citizens. The PRA seems to have accepted RBS's argument that it should be allowed to extend its capital remedies beyond the end of 2013, but it will come under pressure to launch the Citizens float earlier than its original end-2014 target. Lloyds" measures are more piecemeal. Aside from continuing the gradual sell-down of its ownership of insurer-cum-fund manager St James's Place, the bank aims to see through a sale of Scottish Widows Investment Partnership, cut a further £20bn from its "non-core" loan portfolio and exit the bulk of its international operations. All the banks that are identified with capital deficits are expected to outline their measures to deal with them early on Thursday.