Bailout Fears For Britain's Co-Op Bank

Reuters Business Report - British banks are back in the spotlight.

CEO of The Co-operative Bank Barry Tootell stepped down following a downgrade from Moody's - who said the local bank's balance sheet leaves them vulnerable to losses.

Industry sources say Co-op's shortfall could be up to 750 million pounds.

That's left investors worried the Co-op might be the next to ask for help from the government.

Britain's Finance Minister George Osborne say the regulators will be keeping a close eye on the Co-op's future plans.

BRITISH FINANCE MINISTER GEORGE OSBORNE:

"The Co-op have put out a statement last night about how they're going to strengthen their capital position, those plans, like the plans of any bank will be supervised by our new independent PRA, the Prudential Regulatory Authority"

In a bid to avoid another Lehman style collapse in the banking world, British regulators are clamping down, and have asked banks to bolster their capital.

City trader Joe Rundle says that's making life difficult for small UK banks.

JOE RUNDLE, HEAD OF TRADING AT ETX CAPITAL:

"The regulations that are being put on them in the banking environment it's very very tough to make money. So I think they will have to raise some capital. I think the CEO stepping down today is not a helpful move and will maybe give a little bit of panic into the system that could actually self fulfill the need for capital and external support."

Questions were raised about the bank's financial health last month when it pulled out from buying over 600 Lloyds branches.

And the downsizing looks set to continue.

The bank said it's looking to sell its general and life insurance businesses that some estimate could raise over £800 million, as it seeks to strengthen its balance sheet.

In a bid to reassure customers, the Co-op are tweeting that they will not be needing a government bailout despite the piling pressures.