Banks are sound despite market rumours -CBI

LONDON (Reuters) - It is highly unlikely another British bank will fall victim to the credit crisis despite persistent market speculation hitting bank shares, the head of Britain's top business lobby group said on Thursday.

Rumours of liquidity problems in the banking sector took root on Wednesday, knocking shares lower as investors feared another British bank may go the same way as nationalised mortgage lender Northern Rock or U.S. bank Bear Stearns.

The Bank of England is due to meet the bosses of Britain's top banks on Thursday to discuss an ongoing financial market turbulence which has raised the spectre of recession in the United States and a possible economic slump in Britain.

But Richard Lambert, director general of the Confederation of British Industry and a former member of the BoE's Monetary Policy Committee, told reporters he was confident the British banking sector would ride out the storm.

"There are a remarkably small number of sizeable banks in the UK, all of whom who have taken the opportunity to insure their financial positions," Lambert said.

"Their capital ratios stand up well, they came through the 2007 reporting season in good shape and I'm confident they will continue to move along in that direction."

He welcomed the Financial Services Authority's warning against market abuse on Wednesday, which described the rumours of hitting banks "completely unfounded".

"We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them," Sally Dewar, managing director of wholesale and institutional markets at the FSA said on Wednesday.

(Reporting by Chloe Fussell)