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LONDON, June 8 (Reuters) - Britain must spell out more clearly how much capital banks must hold otherwise it will be hard for them to help the economy and foreign lenders may pull out, a top representative of the financial services industry said.
The City of London, home to a large chunk of the sector, hosts its annual dinner for bankers on Thursday where it hopes UK finance minister George Osborne will signal a more accommodating tone on regulation.
Osborne is due to outline how the government will implement the Vickers report on requiring the retail arms of banks to hold extra capital by 2019.
"The proposal to ring fence retail banking could well cause some foreign banks with small retail operations to withdraw from this part of the market," Mark Boleat, chairman of the City of London's policy committee, told a media briefing.
"While individually the effect would be small, collectively it could be quite serious."
City of London officials are lobbying regulators, in particular the Bank of England's Financial Policy Committee (FPC), to state clearly what the tougher capital levels for banks should be and what this means for the economy.
In some respects they are pushing at an open door.
The FPC is split over whether banks have now built up high enough capital and liquidity buffers so that regulators can ease pressure on lenders to keep accumulating capital.
At its March meeting it ratcheted up pressure on lenders to reinforce capital buffers but did not set precise levels or deadlines.
The FPC meets again later this month and one of its members, chief banking supervisor Andrew Bailey, has signalled some easing in regulatory pressure may be needed after Britain's economy tipped back into recession.
Bailey said last month there was a need not to create more uncertainty by asking banks to raise capital without conveying a clear sense of the pace and end point to avoid unnecessary uncertainty.
Britain has forced its banks, many of which needed taxpayer help during the 2007-09 financial crisis, to hold core capital equivalent to 10 percent or more of risk-weighted assets, well above global new rules that do not come into force until next year.
The UK was also the first to require banks to build up liquidity buffers, something that will not be introduced globally until around 2015. (Editing by David Cowell)