UK's Darling backs U.S. bank capital plan

LONDON (Reuters) - British finance minister Alistair Darling threw his weight on Friday behind U.S. proposals to strengthen the capital buffers of banks but said there were still differences of opinion among international policymakers.

Darling, in an interview with Reuters ahead of a meeting of G20 finance ministers and central bankers in London, also warned that the world risked a second recession if it withdrew stimulus measures too quickly.

Policymakers are expected to agree this weekend that expansionary policies need to remain in place for as long as it takes to ensure a recovery. Progress is also expected on how to best clean up the crisis-hit financial sector.

"We agree with the Americans that, across the world, banks do need to strengthen their capital positions," Darling told Reuters in an interview ahead of a meeting of G20 finance ministers and central bankers in London this weekend.

"Inevitably, different countries have different emphases. It's very important that people recognize that the capital positions of banks have to be strengthened. It's important that we see all of these proposals as a whole."

Darling warned against repeating the mistakes of the 1930s by withdrawing stimulus too early and throwing the world back into recession.

There has been evidence that several large economies such as Japan and Germany emerged from recession in the second quarter of this year.

"We've made those mistakes before," he said. "Once recovery is established that is the time to ensure that we gradually withdraw the extraordinary measures we have in place, that we ensure we start to rebuild the fiscal position of every country that has been affected."

Darling said markets were "right to assume countries will, as we get into recovery, take steps that will reduce those deficits." But he highlighted risks to recovery from volatile oil prices and rising unemployment.

"There's still an awful lot more to do," he said."

SPLIT OVER REGULATION

In evidence of a split over the best way to move forward in cleaning up the financial system, French Economy Minister Christine Lagarde said the focus should be on existing efforts to enforce better banking before pushing into new territory.

"We need to see clearly what is the problem, where is the issue, and what is the position of Basel II as amended before we jump to any new rules," she said. "What is important is that we apply rules across the board that offer a level playing field."

Differences of opinion have also appeared over the best way to curtail bonus payments at banks to stamp out overly risky behavior, with France and Germany wanting tougher action than others such as Britain who don't want to choke off activity.

"The French have come up with caps on bonuses," Darling said. "I personally don't think that's a practical proposition when there are other proposals around."

Darling said he wanted to see more competition in Britain's banking sector, once the government has sold the stakes it acquired to prop up ailing institutions at the height of the financial crisis.

"As we divest ourselves of the banks and our shareholdings we will keep the need to encourage new entrants to the forefronts of our minds," Darling said. "I want to see more entrants."

(Reporting by Sumeet Desai and Matt Falloon)