UPDATE 2-BoE's Bailey says some UK banks need more capital
* Bailey says not asked government to help banks
* UK banks seen hiking basic pay to avoid EU bonus cap
* Bailey says single market threatened by many EU rules
* Insurers "not second class citizens" in BoE pecking order
By Huw Jones
LONDON, March 13 (Reuters) - Some of Britain's banks need more capital but the government has not been asked to put cash into Royal Bank of Scotland or Lloyds, the UK's top banking supervisor said on Wednesday.
Andrew Bailey is due to present a report on the capitalisation of UK banks to the Bank of England's Financial Policy Committee (FPC) next week.
"I agree there is a need to strengthen the capital position, but I am not going to go into detail," Bailey told parliament's Treasury Select Committee.
"I have not asked the government to put capital into RBS or Lloyds," said Bailey, who has been appointed a deputy governor of the Bank of England, in charge of prudential regulation.
The restructuring of banks should be a precursor to raising more capital, he added.
Bailey has had "conversations" with RBS about its restructuring in preparation for possible full privatisation of the government's controlling stake in the bank.
The FPC is due to make a statement on March 27.
Bailey has also been confirmed as chief executive of the Bank of England's Prudential Regulation Authority, Britain's new banks and insurance supervisor from April 1 when the Financial Services Authority is scrapped.
Turning to bankers' bonuses, he said that Britain's main banks could bump up fixed pay for top staff by 500 million pounds to get around a proposed European Union cap.
The EU is finalising a new law that would limit bonuses to no more than fixed salaries, with the option of increasing this to up to double fixed salary salaries if shareholders give their approval.
"It's being driven by popular anti-bank sentiment," Bailey said of the proposed cap. "It won't have the effect of reducing overall remuneration."
Increasingly detailed and prescriptive EU rulemaking is one of the biggest threats faced by UK regulators, making it harder for them to use judgement, Bailey said.
"That is the biggest tension I observe. There is no question the single market is fraying," Bailey said.
He also sought to reassure the insurance sector which has worried it will be marginalised by the heavy focus on banks.
"We are very aware they thought they were second class citizens in the Bank of England pecking order as banks take up a very large proportion of a regulator's time," Bailey said.
"I have gone out of my way to say they are not second class citizens and the feedback I get is they understand that."
This year's levy on insurers to pay for supervising the phase in of the now delayed EU Solvency II insurance rules will total just 100,000 pounds, a fraction of the 15 million pounds levied last year, Bailey added.
He also criticised "outrageous gaming" by banks of their in-house computer models for totting up risks to present a more flattering capital ratio, a key indicator of soundness.
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