View the article online at http://citywire.co.uk/money/article/a882671
Bank of England insists banks are safer and stronger
Central bank rejects criticism from Sir John Vickers, former independent banking commissioner, that it has watered down his reforms.
The Bank of England has rejected criticism from Sir John Vickers, former independent banking commissioner, that it has watered down a key part of his reforms aimed at making banks safer.
Writing in the Financial Times yesterday, Vickers, former chairman of the Independent Commission on Banking set up in response to the 2008 banking crisis, claimed the Bank of England wanted banks to hold less capital than the ICB had wanted.
‘The BoE is proposing substantially milder equity requirements for British banks than did the ICB. The wisdom of this policy is questionable,’ wrote Vickers (pictured).
Vickers’ main recommendation was for banks to ‘ring-fence’ or separate their retail operations from their risky investment banking activities by 2019. This was to avoid a repeat of governments and taxpayers having to bail out high street banks in a future crisis, like they did with Royal Bank of Scotland (RBS) and Lloyds Banking Group (LLOY).
His intervention came at a sensitive time after big slides in bank share prices around the world this year have revived memories of the financial crisis and prompted debates on whether enough has been done to tighten regulations and strengthen banks since then.
In a statement the Bank said it had gone beyond the ICB proposal for the minimum capital banks had to hold, with the addition of hybrid bonds that convert into equity, or shares, when a bank is at risk of collapse.
‘The Bank of England continues to support the conclusions of the ICB but is proposing a higher level of capital and overall resilience in the banking system than was proposed by the ICB in their final report,’ it said.
‘On a comparable basis, globally systemic banks in the UK will be required to have 10 times more capital than before the crisis,’ it added.
Sir John is concerned that plans for banks to have a ‘systemic risk buffer’ do not go far enough. He had wanted the six biggest lenders to have 3% of capital in reserve to back their ring-fenced retail arms.
Last month the Bank confirmed it wanted banks and building societies with more than £175 billion of risk-weighted assets to hold extra capital. Only lenders with assets over £775 billion would have to set aside 3%, however, and currently no bank falls into that category, according to the FT.
The Bank of England argues that in terms of total loss-absorbing capacity its proposals will require the biggest UK lenders to have capital equivalent to 22-23% of risk-weighted assets. That compared with the ICB’s recommendation of 17-20%, it said.
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by Gavin Lumsden on Jul 22, 2016 at 16:24