Bank of England FPC shows differences over bank risk buffers

LONDON, (Reuters) - Bank of England policymakers differed last month on how soon they might increase the amount of capital banks must hold against economic downturns, the central bank said on Wednesday.

Bank of England governor and First Vice-Chair of the European Systemic Risk Board Mark Carney arrives to address the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium, December 7, 2015. REUTERS/Francois Lenoir

Last week the central bank said British banks had nearly completed the job of building up their capital defences, and stopped short of any immediate action to curb lending to consumers or small-scale property investors.

But a record of the Nov. 25 and Nov. 30 meetings of the BoE’s Financial Policy Committee at which the decision was made showed some disagreement among members, though they ultimately reached a consensus not to raise the so-called counter-cyclical capital buffer (CCB).

In future, however, the decision might come to a vote, Bank of England Governor Mark Carney said.

“The discrete nature of the decision on the (buffer) might not always lend itself to a consensus-based process,” the record said.

The central bank also discussed the possibility of the U.S. Federal Reserve raising rates in December, and concluded that the market impact would be hard to predict.

To date public divisions between the 10 voting members of the FPC have been rarely visible -- something which has drawn concern from the parliament committee which monitors the BoE.

This time, however, the record of the meeting showed that some differences over how soon to raise the CCB, which aims to make banks hold more capital as they start to lend more freely, and reduce capital requirements in a downturn.

Opponents of a rise said overall credit growth in Britain remained below pre-crisis rates and there were signs that companies were becoming more risk averse.

The FPC also noted that global guidelines suggested the buffer should remain at zero.

Others, though, saw a case for a move “soon”.

“The ability to support the economy in the future through cuts in the CCB, as risks crystallised, required a meaningful buffer of additional capital which could then be released,” the record said.

The record also showed some disagreement over the overall amount of capital banks should hold.

BoE Governor Mark Carney was keen last week to dispel banks’ fears that the BoE was going further than international rules required, and acknowledged that excess capital requirements could hurt growth.

The BoE is now tweaking the requirements individual banks must meet with a view to imposing the add-on CCB buffer step-by-step from March.

British lenders that play a key role in the global financial system -- such as Barclays BARC.L and HSBC HSBA.L have to hold extra capital to reflect this.

Wednesday’s record showed that the BoE intends to consult in January on whether the ring-fenced units of banks also need to hold a ‘systemic risk buffer’ of extra capital.

The FPC also decided that banks and building societies with less than 175 billion of total assets would be subject to a systemic risk buffer of zero percent. For larger lenders, this buffer would be capped at 2.5 percent of capital.

Reporting by David Milliken and Huw Jones;