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UK central banker: banks must hike capital buffers

UK central banker: banks must hike capital buffers

Capital requirements for U.K. banks should be twice as high as the agreed international standards to protect taxpayers from paying the price of bank failures, and would not be unduly burdensome, a Bank of England policymaker said Thursday.
The Basel III agreement announced in September calls for raising the total requirement for capital reserves to 7 percent, effective in 2015.
"Our analysis suggests clearly that a far more ambitious reform would ultimately be desirable _ a capital ratio which is at least twice as large as that agreed upon in Basel would take the banking sector much closer to an optimal position," said the discussion paper, written by David Miles, a member of the Bank's rate-setting Monetary Policy Committee, and Bank staffers Jing Yang and Gilberto Marcheggiano.
British bankers are already complaining that the government is imposing more demanding standards than those faced by international competitors, and are unlikely to welcome the proposal.
Capital requirements are one of the issues now being examined by The Independent Commission on Banking led by Sir John Vickers, which will make recommendations about reducing the risks of bank failures. Its report is due by the end of September.
Equally alarming to bankers is the possibility of divorcing retail banking from higher-risk investment banking, an idea backed by some senior government officials.
The paper argues that "the costs of stricter capital requirements are fairly small...In retrospect we believe a huge mistake was made in letting banks come to have much less equity funding certainly relative to unweighted assets than was normal in earlier times," the paper said.
Angela Knight, chief executive of the British Bankers' Association, said British banks "have already moved further and faster on building capital than many of their international competitors."
"Any proposal of this sort has to assess the impact on the recovery of taking significant amounts of money out of circulation. The real focus for us all _ including regulators and authorities _ must be on jobs and growth," she said.
The BBA's chairman, Marcus Agius, set out the group's concerns about the pace and stringency of U.K. regulation on Monday.
"There has been considerable concern shown by the industry that this country is applying these requirements in a manner that is super equivalent in the U.K. and so resulting in a non-level playing field, particularly with those countries with which we compete most critically," Agius said in a letter to the government's Treasury chief, George Osborne.
"This is most notable when the U.K. applies additional requirements to the agreed standards; when it implements them earlier than others; and when it does not use the flexibility the standards permit or not in a manner reflected elsewhere," said Agius, who is also chairman of Barclays PLC.
Vickers' commission is considering whether higher capital and liquidity requirements or taxes should be applied to bank, depending on their size and structure.
In a speech last week, Vickers said there is potentially a trade off between higher capital requirements and rules which would insulate retail banking from riskier operations.
"It cannot be disputed that banks of systemic importance need much more loss-absorbing capacity than they had a few years ago," Vickers said, adding that there was a wide range of views about how much more capacity is required.
"If the probability and/or impact of bank failure particularly of retail service provision can be reduced by forms of separation between banking activities, then so too might capital requirements," Vickers said.


Updated : 2021-07-24 01:18 GMT+08:00