* Carney says no mission accomplished in fixing banks
* Regulators give banks more flexibility over cash buffers
By Huw Jones
LONDON, Aug 28 Britain's eight top lenders can
cut their cash reserves by a collective 90 billion pounds ($140
billion) and use the funds to support economic growth, the Bank
of England's new governor Mark Carney said on Wednesday.
Britain's lenders were forced to build up buffers of cash
and UK government bonds far earlier than required under a
The buffers help cushion them from short-term market shocks
so they can keep operating for a month even if markets freeze,
as they did during the 2007-09 financial crisis.
UK government bonds, known as gilts, fell after Carney's
announcement as investors factored in the likelihood that the
banks will sell off some of their holdings.
Carney, in his maiden speech as governor of the Bank of
England, said it "will help to underpin the supply of credit,
since every pound currently held in liquid assets is a pound
that could be lent to the real economy".
In a separate statement, the central bank's Prudential
Regulation Authority, which supervises UK lenders, said banks
could scale back the liquidity buffers on condition they have a
separate, minimum core capital ratio of 7 percent - a new
The watchdog has said it expects the lenders to meet this
capital ratio by the end of the year after some had to take
steps to find more capital.
The eight are: HSBC, Barclays, Co-op,
Lloyds, RBS, Standard Chartered,
Santander UK and Nationwide.
The PRA is implementing a policy that the BoE's Financial
Policy Committee decided on in June. The policy would allow the
four biggest banks to scale back their liquidity buffers to 80
percent of where they should be if in full compliance with the
global Basel III accord, not due until 2018.
This would release 70 billion pounds but, by extending the
change to the eight main lenders, a further 20 billion pounds
can potentially be released.
The British Bankers' Association said banks would be
re-assessing how much of the 90 billion pounds can be redeployed
into lending to small and medium businesses and households, as
they are committed to doing.
NO MISSION ACCOMPLISHED
The banks are under political pressure to increase lending
to business following criticism that they are focusing on home
mortgages and consumer credit rather than productive industry,
encouraging a lop-sided economic recovery.
The banks argue that lending levels reflect the amount of
Carney signalled that banks face having to hold more capital
against mortgages if house price growth becomes unsustainable.
Like his predecessor Mervyn King, he insisted that
well-capitalised banks are in a better position to lend, saying
U.S. banks have rebuilt their capital bases and now lend far
more than their British peers.
But Carney avoided some of King's harsh rhetoric towards the
British banks, striking a more conciliatory tone that was
welcomed by Philip Hampton, chairman of Royal Bank of Scotland,
during a visit to Reuters.
"Most people like Mark Carney and they think they can do
business sensibly with him," Hampton said.
Britain's banks will face further capital requirements
because of their size or market dominance, but Carney said his
task would be to manage this transition "in a gradual way that
supports continued confidence in growth".
With a 7 percent core capital ratio, banks would be
"adequately capitalised" to start that transition, he said.
"There is no mission accomplished banner that the banking
system is fixed," Carney added.
Banks have been using cash and top-quality government bonds
such as UK gilts in their liquidity buffers. The PRA said on
Wednesday that up to 40 percent of the buffers could in future
be in corporate bonds, shares and retail mortgage-backed
securities, giving them greater flexibility.
$1 = 0.6435 British pounds)