UPDATE 2-Barclays says new watchdog targets could force lending cut
* Barclays boss says has options to reach 3 pct leverage target
* Warns lending may suffer if it has to hit target quickly
* Bank of England says no plan that restricts lending will be accepted
* Barclays targets 14 pct RoE for investment bank
By Steve Slater
LONDON, June 28 (Reuters) - Barclays warned on Friday it may have to cut lending if it is forced to act quickly to meet new financial targets imposed by regulators, but the Bank of England said it will not accept any plans that hurt lending.
The central bank's Prudential Regulation Authority (PRA) last week surprised investors by telling banks they needed to have a 3 percent leverage ratio, and said Barclays fell short with a ratio of only 2.5 percent after adjustments.
The ratio measures capital against total loans and some bankers argue it penalises low-risk, high-volume businesses like trade finance and mortgage lending.
The PRA gave Barclays and mutual Nationwide, the only other major lender to fall short, until the end of July to say how they will improve.
Barclays Chief Executive Antony Jenkins said on Friday Barclays would achieve the target by 2015 under its existing plans.
"We have options to accelerate with minor income effects, but an aggressive acceleration requirement from the PRA would require additional actions," he said, adding that might include squeezing "lending to the UK and other economies, which is something we want to avoid."
That creates a dilemma for the regulator, which is trying to encourage banks to lend to revive economic growth. Barclays and Nationwide were the only two firms whose net UK lending was more than 1 billion pounds ($1.5 billion) in the first quarter.
A Bank of England spokeswoman said in a statement: "We have made it very clear that any plans that restrict lending to the economy will not be accepted."
Jenkins said he expected to reach agreement with the PRA in the next four weeks.
"Given our starting point, we expect the July discussions will center on possible acceleration," he told analysts and investors before the start of a presentation.
Jenkins said the leverage ratio was a "crude" measure and should only be used to supplement a capital measure based on how risky assets are perceived to be, or risk-weighted assets (RWA).
Barclays said in its presentation its investment bank plans to continue to shrink and reshape to improve returns and cut risk, and estimated the unit's risk-weighted assets would drop to 210-230 billion pounds by the end of 2015, from 257 billion at the end of last year.
The investment bank contributes the bulk of Barclays' profits, but the business has come under fire for creating the aggressive risk-taking culture which bosses say they are trying to rein in.
The investment bank is targeting a return on equity of 14 percent by 2015, excluding its legacy assets. That is above the group's RoE target of 11.5 percent.
The investment bank has retrenched in mainland Europe and Asia and said its main focus is on the United States and Britain. Its advisory business has cut staff and monthly costs by 15 percent in the year to the end of April. In commodities and equities, staff cuts were 18 percent and 16 percent respectively.