Banks have underestimated risks to recovery

Policymakers including the Bank of England are underestimating the risks to recovery of international efforts to recapitalise banks, says Lombard Street Research.

The strength of UK banks' balance sheets remains fragile and they must shore up their capital bases, but this could stifle economic recovery, argues Jamie Dannhauser, a senior economist at the group. "Developed world banks entered the financial crisis with troublingly small buffers of capital," Dannhauser says. "Therefore higher levels of capital in the banking system will lower the probability and cost of future banking crises. "However, this must be weighted against the possibility that the very act of making banks safer actually achieves the opposite in the short to medium term by ...