FSA told Co-op to inform Lloyds of capital problems during branch sale talks

3 July 2013

The Financial Services Authority (FSA) raised its concerns about the Co-operative Bank's capital problems with the company two years ago, according to a former senior regulator.

Andrew Bailey, who is now at the Bank of England but was working at the FSA at the time, told policymakers he told the Co-operative it was its duty to pass on his concerns to Lloyds.

Lloyds must sell its branches under European Union competition rules as it received a hefty bail-out from the UK government after the financial crisis.

The Co-operative was set to buy the branches but the deal collapsed, with the bank citing the poor economic climate.

Lloyds' told the Treasury Committee last month that it did not realise there was a problem with the Co-operative's capital until December 2012.

The Co-operative recently revealed it had a capital shortfall of £1.5 billion ($2.3 billion) and bondholders will be affected in the short-term.

By Tony Aynsley

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