* BoE outlines two possible leverage ratio supplements
* Supplements would likely take effect from 2019
* Bankers say plans go too far, create complexity
(Adds banking industry reaction)
By Huw Jones
LONDON, July 11 The Bank of England (BoE)
proposed on Friday that Britain's biggest banks should set aside
from 2019 more capital than planned under global rules being
drawn up to prevent a repeat of the financial crisis.
Launching a public consultation on a new leverage ratio -
the amount of capital a bank has to hold as a percentage of
total assets - the BoE said many financial institutions may have
to set aside funds on top of a global minimum that has yet to be
A leverage ratio of 3 percent, the provisional global level,
means a bank must hold capital equivalent to 3 percent of its
total assets, regardless of how risky they are.
"There may be a case to introduce a supplementary leverage
ratio component to a subset of firms, for example ring-fenced
banks and/or systemically important institutions, whose failure
would be most destabilising for the financial system," the BoE
said in a consultation paper.
This would cover the bulk of Britain's banks as they have
already been deemed to require a ring-fence of extra capital to
protect depositors, hold extra capital because of their size, or
The BoE is proposing two types of supplements, a permanent
one for some lenders, and a temporary one to cool credit booms.
Some banks would have to comply with both in some circumstances.
The supplements may have to comprise the most expensive form
of capital, thereby putting limits on a bank's ability to use
cheaper hybrid debt known as contingent capital or Cocos.
Members of parliament's influential treasury committee want
a minimum leverage ratio of 4 percent or above, saying tougher
measures are needed to ensure taxpayers are not asked to bail
out banks like in the financial crisis.
British banks such as Barclays, HSBC,
Lloyds and RBS already have to meet a 3 percent
target, forcing some to raise more capital.
The British Bankers' Association (BBA) said the proposals
complicated global plans for a simple, internationally
harmonised leverage ratio.
"Adding in complexity runs the risk of creating its own
distortions and penalising safer lending. Our members will work
with the regulator to identify problematic areas a more complex
leverage ratio would introduce," Simon Hills, an executive
director at the BBA, said in a statement.
BoE Governor Mark Carney has previously said that 3 percent
might not be high enough but the consultation paper did not
propose any specific figures for what the leverage ratio,
including any supplements, should be.
The impact of a tougher leverage ratio won't be known until
the BoE sets actual levels later on and details phase-in
The consultation suggests alternatives to a supplement, such
as a floor or minimum capital for particular assets.
GOING TOO FAR?
Global banking regulators on the Basel Committee have agreed
to introduce a leverage ratio for banks across the world, and
the BoE will use the committee's definition of a leverage ratio
Basel is not due to agree on the level of a leverage ratio
for the industry worldwide until 2017, and it will be enforced
from January 2018. There are splits among its members over
whether 3 percent is high enough.
The committee describes the world's first common leverage
ratio as a backstop to a bank's core measure of capital which is
calculated in relation to riskiness of assets.
"The Bank of England's proposals go too far. This moves away
from (the) simple backstop notion in Basel," a UK banking
industry official said.
The U.S. Federal Reserve has already insisted on a leverage
ratio of 5 percent and above for U.S. banks, and investors may
want to see that all big banks globally are equally strong.
"Where the Americans go, we tend to follow. It's got to be a
decent bet that this is where we all end up," said Simon
Gleeson, a financial lawyer at Clifford Chance
The discussions over the leverage ratio have become
increasingly charged as many regulators no longer fully trust
the way banks calculate their main core capital buffers. They
are based on only risk-weighted assets, the value of which is
open to debate.
The consultation is due to run until Aug. 14. A final review
is due to be published in November.
(Reporting by Huw Jones; Editing by William Schomberg, John
Stonestreet and Mark Potter)