LONDON (Reuters) - The Bank of England delayed disclosing how much more capital was needed in the British banking sector in late 2012 because it feared there could be a loss of confidence, it said on Tuesday.

A summary of discussions by regulators about the risks of talking publicly about insufficient capital levels without clear ways to fix them was omitted from the minutes of a meeting of the BoE's Financial Policy Committee in November, the Bank said.

"There was a risk that if these factors were highlighted by the Committee in public, without there being clear accompanying actions, confidence in UK banks - and hence financial stability - could be adversely affected," the text began.

The FPC did publicly stress the need for more capital at banks at the time of last November's meeting. Its members were shown to be in broad agreement that banks had to bolster their defences against financial shocks after many underestimated the cost of loans going sour and future fines for misconduct.

However, according to the omitted paragraph which was published on Tuesday, the Committee agreed it would be "contrary to the public interest" to reveal its judgments about the overstatement of bank capital positions across the sector.

The FPC was set up as part of a revamp of Britain's regulatory system to try to prevent a repeat of the financial crisis of 2008, when the government had to bail out some of the country's largest banks.

A core aim is to flag problems before they get out of hand.

In the originally omitted text, policymakers talked about an unnamed British bank which had issued contingent capital instruments and which was in talks with the now defunct Financial Services Authority about issuing more.

In November 2012 Barclays <BARC.L> raised $3 billion (1 billion pounds) in contingent capital bonds that can be written off in a crisis.

The two banks in which the government has a big stake - RBS <RBS.L> and Lloyds <LLOY.L> - had more limited options because the Treasury was "not minded" to inject more capital unless "absolutely necessary," although they were able to restructure their balance sheets and had state backing, the paragraph said.

"It was important that the FSA firmed up these initial indications with all of the individual institutions promptly, to ensure that there was no ambiguity about what the FPC's general recommendation implied for each of them," it continued.

"The Committee agreed, however, that it would be contrary to the public interest to reveal the broad quantitative judgments it had made with respect to the overstatement of banks' capital positions across the sector, or the FSA's indications of likely actions that banks might take to rebuild their resilience, at this point," the text said.

(Reporting by William Schomberg and Huw Jones, editing by Gareth Jones)

 

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