The Bank of England (BoE) proposed on Friday that Britain's biggest banks should set aside from 2019 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 leverage ratio - the amount of capital a bank has to hold as a percentage of total assets - the BoE said many financial institutions may have to set aside funds on top of a global minimum that has yet to be fully agreed.
A leverage ratio of 3 percent, the provisional global level, means a bank must hold capital equivalent to 3 percent of its total assets, regardless of how risky they are. "There may be a case to introduce a supplementary leverage ratio component to a subset of firms, for example ring-fenced banks and/or systemically important institutions, whose failure would be most destabilizing for the financial system," the BoE said in a consultation paper. This would cover the bulk of Britain's banks as they have already been deemed to require a ring-fence of extra capital to protect depositors, hold extra capital because of their size, or both. The BoE is proposing two types of supplements, a permanent one for some lenders, and a temporary one to cool credit booms. Some banks would have to comply with both in some circumstances. The supplements may have to comprise the most expensive form of capital, thereby putting limits on a bank's ability to use cheaper hybrid debt known as contingent capital or Cocos. Members of parliament's influential treasury committee want a minimum leverage ratio of 4 percent or above, saying tougher measures are needed to ensure taxpayers are not asked to bail out banks like in the financial crisis. British banks such as Barclays , HSBC , Lloyds and RBS already have to meet a 3 percent target, forcing some to raise more capital. The British Bankers' Association (BBA) said the proposals complicated global plans for a simple, internationally harmonized leverage ratio.
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