By Matt Scuffham and Steve Slater
LONDON (Reuters) - Britain's financial regulator warned the Co-operative Bank two years ago that it needed to raise capital and was not in a position to buy hundreds of branches from Lloyds Banking Group.
Andrew Bailey, the Bank of England's deputy governor for financial stability, told lawmakers the regulator had major reservations about Co-op's ability to acquire 632 branches put up for sale by Lloyds as a condition of its 2008 state bailout.
Bailey said he had raised five issues of concern with the Co-op: capital, liquidity, risk management, integration, governance and management.
"It was a pretty full-set, roughly everything," he said.
The Lloyds deal, codenamed Verde, collapsed in April after Co-op was found to have a capital shortfall, which the regulator has since identified to be 1.5 billion pounds ($2.3 billion).
Co-op is forcing bondholders to help plug that shortfall, using a 'bail-in' rescue model which will see them swap their debt for new bonds and equity in the bank, losing 500 million pounds in the process.
"We never approved the Co-op bid for the Verde branches. Going back to the outset of the process, about two years ago when it was first an idea, I said to the board of the Co-op Bank that they needed to raise capital," Bailey told parliament's Treasury Select Committee on Tuesday.
The decision by Lloyds to sell the branches to Co-op prompted allegations that politicians - keen to back customer-owned financial services businesses, such as Co-op, as an alternative to mainstream banks - had encouraged the choice.
However, Lloyds executives told the committee last month that they had not been subject to political pressure and made the decision to back Co-op's bid for commercial reasons.
Bailey said Lloyds had been skeptical about a rival bid for the Verde branches from new banking venture NBNK and had agreed to work on a listing were the Co-op deal to fall through.
($1 = 0.6568 British pounds)
(Editing by Louise Ireland)
WASHINGTON (Reuters) - The Federal Reserve on Tuesday is set to vote on whether to adopt the international Basel III capital rules and will also consider a series of other reforms that go beyond that international agreement.
Daniel Tarullo, in charge of financial supervision at the Fed, said the Fed was working on four new rules for the country's biggest banks in the coming months, some of which he had alluded to in an earlier speech.
The Fed said it would adopt a leverage ratio, which measures equity as a percentage of assets without looking at risk weightings, beyond the 3 percent required by Basel.
The U.S. central bank was also working on a new rule to address risks in short-term wholesale funding and a rule on combined equity and long-term debt, as well as a capital surcharge for banks that pose a potential threat to the entire system.
The Fed had also adapted the risk weightings for residential mortgages and some other assets for smaller banks to address concerns that the regulation was too burdensome.
(Reporting by Douwe Miedema; Editing by Chizu Nomiyama)
WASHINGTON (AP) — U.S. home prices jumped 12.2 percent in May from a year ago, the most in seven years. The increase suggests the housing recovery is strengthening.
Real estate data provider CoreLogic said Tuesday that home prices rose from a year ago in 48 states. They fell only in Delaware and Alabama. And all but three of the 100 largest cities reported price gains.
Prices rose 26 percent in Nevada to lead all states. It was followed by California (20.2 percent), Arizona (16.9 percent), Hawaii (16.1 percent) and Oregon (15.5 percent).
CoreLogic also says prices rose 2.6 percent in May from April, the fifteenth straight month-over-month increase.
Steady hiring and low mortgage rates have encouraged more Americans to buy homes. Greater demand, a limited number of homes for sale and fewer foreclosures have pushed prices higher. Prices are still 20 percent below the peak reached in April 2006, according to CoreLogic.
Sales of previously occupied homes topped the 5 million mark in May for the first time in 3 ½ years. And the proportion of those sales that were "distressed" was at the lowest level in more than four years for the second straight month. Distressed home sales include foreclosures and short sales. A short sale is when a home sells for less than what is owed on the mortgage.
Home sales are expected to increase in the coming months. That's because the number of people who signed contracts to buy homes rose in June to the highest level since December 2006. There's generally a one- to two-month lag between a signed contract and a completed sale.
One worry is that higher mortgage rates could slow the housing recovery. Still, rates remain low by historical standards. And increases in rates could boost home sales. That's' because many Americans may act to lock in the lower rates before they rise further.
A survey by the University of Michigan released last week found more Americans believe it is a good time to buy a home because both rates and prices are just starting to rise.
Rates have been trending higher for two months. And the average rate on a 30-year fixed mortgage leapt to 4.46 percent last week, according to mortgage buyer Freddie Mac. That's the highest in two years and a point more than a month ago.
Mortgage rates surged after Federal Reserve chairman Ben Bernanke said last month that the Fed could scale back its bond buying later this year and end it next year if the economy continued to strengthen. The bond purchases have kept long-term rates down.
Economists say that higher mortgage rates are unlikely to stifle the housing recovery. A more critical issue is whether potential buyers can get loans. There are signs that banks have become more willing to extend mortgages.