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Financials

BoE says UK banks within "hair's breadth" of capital adequacy target

LONDON, March 7 (Reuters) - A Bank of England (BoE) policymaker said on Monday that Britain’s banks would not need much more capital to comply with its solvency rules, as the central bank tries to quell talk that another major increase in capital requirements is on the way.

Despite rising volatility and declining prices for bank shares as well as disappointing earnings, core capital levels average nearly 13 percent, the bank’s executive director for financial stability strategy and risk, Alex Brazier, said.

“All ghosts of crises past. But one ghost has not returned to haunt us. Questions about returns haven’t translated as they’ve done before into questions about resilience,” he told a banking conference in Washington.

The BoE has been locked in a public argument with John Vickers, architect of a reform that will force Britain’s banks to ring-fence their retail arms with extra capital from 2019.

Vickers has said that banks should hold more capital than will be required by the central bank, but Brazier said the 13.5 percent target goes beyond internationally agreed norms.

“So on current measures, we expect major UK banks to fund no less than 13.5 percent of risk weighted assets with Tier 1 equity,” he said.

“After a long march to build capital strength, UK banks are within a hair’s breadth of that today. And the rewards of greater resilience are being reaped.”

The BoE has signalled it plans to impose in stages a so-called countercyclical capital buffer of one percent though, to a large extent, this will just involve relabelling capital that banks already hold to give clarity to lenders and investors.

The aim is to build up a clearly defined pot of capital to begin covering losses from soured loans in a downturn without eating into core buffers immediately.

“The Bank will have a bias to acting early and gradually. It expects to be adding around 1 percent to the countercyclical capital buffer on UK exposures of all banks, even before the overall threat of future losses looks high,” Brazier said.

“And if threats materialise, or shrink, the Bank will reduce its expectation for capital buffers back towards the baseline level.”

The BoE might begin introducing the countercyclical buffer requirement at the end of March, when its Financial Policy Committee issues a statement. (Editing by Louise Ireland)

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