* BoE says won't accept any planned restriction on lending
* Barclays CEO calls new leverage target 'crude'
* Ex-BoE official says Barclays sailing 'close to the wind'
By Steve Slater
LONDON, July 1 Barclays' promise to
have a model relationship with industry regulators is already
being tested as the bank tries to fend off pressure to meet
stricter capital requirements without reining in lending.
The Bank of England delivered a quick and sharp response on
Friday when Barclays Chief Executive Antony Jenkins said he may
have to cut lending to UK households and companies if he is
forced to meet a 3 percent leverage ratio quickly.
The BoE said it had made it "very clear" that any plans that
restrict lending would not be accepted.
The leverage ratio measures a bank's capital against total
loans. A higher ratio makes it less vulnerable to the kind of
sharp drop in asset values that pushed some lenders to seek
government bailouts during the financial crisis.
Barclays has had testy relations with banking regulators for
years. While it avoided a state rescue during the crisis, its
investment banking arm is often a target for critics of a
free-wheeling banking culture which they say puts short-term
gain before the interests of clients and the wider economy.
Jenkins' predecessor Bob Diamond was ousted in 2012 after
Barclays was fined $450 million for rigging Libor interest rates
and Jenkins said in April he wanted his bank "to become a model
of constructive engagement with regulators".
The BoE's new Prudential Regulation Authority (PRA) told
banks last month they must have a 3 percent leverage ratio and
that Barclays fell short with a ratio of 2.5 percent after
adjustments. Mutual Nationwide was the only other lender to miss
Jenkins said on Friday he expected to reach agreement with
the PRA in the next four weeks.
But he also questioned the PRA's approach, saying 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.
His comments suggest Barclays will take a tough approach in
the discussions with the regulator in the next two weeks.
Robert Jenkins, a former member of the BoE's Financial
Policy Committee, said Barclays has many options to reduce its
leverage, including cutting costs, raising equity or paying less
"The taxpayer should worry that this systemically important
financial institution continues to sail close to the wind. Its
board should worry that its CEO is happy to do so," Jenkins said
in a letter in the Financial Times on Monday.
Barclays had to submit its plan to meet the target by
Sunday. The PRA will report publicly on whether it is acceptable
or needs to be revised.
Barclays said in a presentation last week that its
investment bank would continue shrinking and reshaping to
improve returns and cut risk.
Based on Barclays' total assets of 1.6 trillion pounds, it
would need to find 7-8 billion pounds of extra capital to lift
its leverage ratio to 3 percent from 2.5 percent.
The bank has already said - and the PRA has accepted - it
can find at least 3 billion pounds of capital, indicating it
could need to find 4 billion more. Alternatively, it could shed
133 billion pounds of assets, or 17 percent of its balance
sheet, analysts at Deutsche Bank estimated.
Many bankers argue that the leverage ratio is too simplistic
a measure and penalises low-risk, high-volume businesses such as
trade finance and mortgage lending.
Britain is moving early to introduce a leverage ratio - a 3
percent cap is due to come in under global rules in 2018 - but
other countries may also introduce it ahead of time.
Khalid Krim, head of capital solutions EMEA at Morgan
Stanley, said banks would have to issue more capital.
"This is all going to be a long-drawn out process though.
The market has to give banks and regulators time to adjust, and
banks are not going to be under imminent pressure to raise
capital," he said.
Andrew Bailey, head of the PRA, is expected to be quizzed on
the issue when he appears before UK lawmakers on Tuesday.
(Additional reporting by Natalie Harrison at IFR; editing by