September 22, 2011 / 11:17 PM / 6 years ago

UK bank reformer won't push plan on rest of world

NEW YORK (Reuters) - John Vickers, the head of a United Kingdom panel that has recommended cordoning off basic consumer banking from riskier investment banking, said he will not promote his plan to other countries as a way to contain risks in their financial systems.

Vickers, speaking at an academic conference of about 100 people here at New York University, said other nations have different rules and different situations with their banks that may call for different responses.

“In no sense is this a universal prescription,” Vickers said.

He added, however, that he would like to see other countries establish commissions to devise new ways to protect taxpayers from having to fund bank bailouts. He said he would also like to see the group’s general ideas gain favor. Those include requiring substantial cushions to absorb losses.

Vickers’ five-member panel, the Independent Commission on Banking, was appointed by the government last year and released its final report on September 12 to praise from top political leaders. Vickers said he hopes to see the recommendations formally embraced by the end of the year. Some features of the plan will require legislation, which will take longer, he said.

Vickers, an Oxford academic and former chief economist of the Bank of England, said the $2.3 billion trading scandal at Swiss banking giant UBS AG -- which surfaced three days after his report -- shows banks generally need to have more capital.

The commission proposed what it called a “ring-fencing” to isolate services to individuals and small businesses in subsidiaries apart from investment banking activities, such as securities trading and underwriting. The goals include reducing pressure on governments to have taxpayers bailout banks that lose a lot of money taking big risks.

The reforms are intended to avoid a repetition of the financial crisis, when massive injections of government cash were required to bail out two of Britain’s biggest lenders, Lloyds and Royal Bank of Scotland.

In its report, the ICB insisted banks hold core capital of at least 10 percent of risk-weighted assets in their domestic retail operations.

The plan calls for U.K. banks to hold a further 7 to 10 percent of capital that can be in the form of “bail-in” bonds -- which take a loss or convert into equity to recapitalize a bank in trouble -- in effect requiring they hold total primary loss-absorbing capital of 17 to 20 percent. That is a level only the Swiss also plan to introduce.

By comparison, new global regulations due to come into force in 2019 asks banks to hold a minimum of 7 percent in quality capital, or a likely 9.5 percent for the biggest institutions.

Reporting by David Henry in New York and Sudip Kar-Gupta and Steve Slater in London

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