The UK's banking sector is in the spotlight once again after the Bank of England's Financial Stability Report revealed a £60 billion black hole in UK banks' finances.

The report suggested that the 'Big Four' banks - RBS, Lloyds, HSBC and Barclays - alone needed between £5bn-£35bn of new capital to meet regulatory risk standards and to cover fines and compensations for mis-selling, as well as extra money for consumer loans and debt.

Sir Mervyn King, the governor of the Bank of England, said the risks gave a false picture of banks' financial health and warned a failure to get the banks' finances in order could jeopardise the UK’s economic recovery.

He called for banks to accurately account for potential losses on their balance sheets and warned they may need to recapitalise or restructure to ensure they have sufficient funds to cover a potential future crisis.

The Financial Services Authority could also be called upon to produce an independent audit of bank loans, if the Financial Policy Committee, which was established in the aftermath of 2008 to safeguard the UK against a further financial crisis, gets its way.

One way of recapitalising would be for banks to sell off more of its branches, but this is easier said than done.

The Royal Bank of Scotland has been trying to sell off 316 branches for weeks now, and a deal which would have seen it off-load them to Santander UK fell through in October after the Spanish lender withdrew, citing long delays.

Nick Hood, business analyst at Company Watch, told Huffington Post UK: "The embarrassing collapse of the £1.65bn Santander deal has delayed the sale of the surplus RBS branches, but the interest shown by Nationwide is an encouraging development.

"Many commentators doubt the profitability of high street banking, or at least the willingness of customers to pay sufficient to make the business worthwhile, given the current deep public dislike and distrust of bankers."

It's hoped that by shoring up the balance sheets investors might be encouraged to put more of their own money into the banks, a position which looked shaky earlier this month after the Association of British Insurers issued a statement saying British banks were becoming unpopular with some of the country's largest investors.

The ABI is due to deliver a report to the Parliamentary Commission on Banking Standards on behalf of its members, who control £1.5 trillion assets and are among the bank’s biggest investors, which will say investors are concerned that regulations being introduced to shore up financial stability risked economic growth.

"This has a negative impact on banks' investability," the ABI told the Commission. "The prospects of sustainable economic recovery in the UK are to some extent dependent on banks being able to raise the funds necessary to finance the growth of small and medium-sized companies. From the perspective of institutional investors, it is essential that banks should be an investable proposition."

In particular, the Vickers Report recommendation to split up the retail and investment parts of the bank entirely is not proving popular with ABI members, as they are "far are unconvinced about the real benefits of ringfencing and/or separation and are sceptical about the benefits relative to the operational costs and disruption".

Company Watch's Hood explained to Huff Post UK that since the capital adequacy of banks was driven by so many factors, nobody can put an accurate number their current deficits.

"A blindfolded monkey with a pin has as good a chance of getting the figure right as any hypothetical financial model," he said.

"The scale of future fines and compensation payments for their involvement in PPI mis-selling and Libor rigging both here and around the world are a matter of pure conjecture. There are estimated to be 160,000 zombie companies struggling to service their debts, with incalculable potential to ramp up loan provisions. Economic uncertainty may tip more businesses and individuals over the insolvency cliff."