July 11, 2014 / 8:30 AM / 3 years ago

Bank of England says may be case for extra leverage ratio for banks

(TXT)

LONDON, July 11 (Reuters) - The Bank of England said on Friday that big British banks and lenders might need to set aside 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 so-called leverage ratio, the BoE said many financial institutions may have to comply with a requirement to set aside funds on top of a proposed minimum of 3 percent of their capital.

“There may be a case to introduce a supplementary leverage ratio component to a subset of firms (e.g. 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.

Such a supplement would effectively cover the bulk of Britain’s banks.

British lawmakers want a leverage ratio of 4 percent or above, higher than the proposed global rule for 3 percent, saying tougher measures are needed to ensure taxpayers are not asked to bail out banks as they were in the financial crisis.

British banks have been required to meet the 3 percent target by Jan. 1, 2014, forcing some to raise more capital.

BoE Governor Mark Carney has previously said that 3 percent might not be high enough.

The U.S. Federal Reserve has insisted on a leverage ratio of 5 percent and above for U.S. banks.

The BoE consultation paper did not propose any specific figures for what the leverage ratio, including any supplements, should be.

Global regulators are not due to agree on the level of a leverage ratio for the industry worldwide until 2015 or later, given the disagreements between countries.

The discussions have become increasingly charged as many regulators no longer fully trust the way banks calculate their main core capital buffers. They are based only risk-weighted assets, the value of which is open to debate.

The leverage ratio is based on total assets held by a bank and is therefore seen as less open to interpretation.

The BoE said in its consultation paper that any supplementary leverage ratio would have to be made up of top-quality capital.

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

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