“Britain’s banks are under-capitalised. Not just by a little bit, but a lot. Under the Bank of England’s worst-case estimate, lenders need to raise something in the order of £60bn, more than three times the amount required to bail out Cyprus, which gives some idea of the scale of the problems officials think the industry faces.

“This week, the Bank of England’s Financial Policy Committee, the most powerful body overseeing macro-economic stability, will reveal its decision on how to tackle any capital shortfall. Banks are braced for grim news on the strength of their balance sheets.

“Arguments over bank capital have raged since November when the FP C came out with its demand for regulators to begin a detailed examination of the books of the country’s banks. The FPC’s statement crystallised the nagging worry many banking experts have that lenders have not come close to admitting the scale of the losses they face.

““Under-recognition of expected losses would imply that the banking book valuations of banks’ assets were overstated,” said the FPC in its financial stability report.”

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