(Reuters) - The Bank of England will tell lenders at the end of this month what their key measure of insulation against future crises should be, bringing forward a keenly-awaited announcement from 2015 after draft proposals worried banks and lawmakers.
Banks are on tenterhooks over the leverage ratio they will have to meet, with widespread expectation it will be higher than the 3 percent interim level proposed under a global bank capital accord known as Basel III.
The ratio is a simple measure of capital as a percentage of assets that takes no account of the riskiness of loans. The BoE's Financial Policy Committee (FPC) published a consultation paper in July proposing a framework for the ratio in Britain and some of the responses were critical.
"The committee noted that a common theme in the feedback was around the need for guidance over how the proposed framework would be calibrated," the FPC said in a statement on Thursday. The committee has decided to bring forward from mid-2015 its view on the appropriate calibration or level for the ratio.
"That view will be recorded in its final proposals for the leverage ratio framework, which will be published at the end of October," the FPC statement added.
Lenders will also learn at the end of this month how they fared in an EU-wide health check, although the result of an additional test for top British banks won't be known until the end of the year.
The BoE's consultation paper dismayed banks by moving away from a simple, single figure ratio as proposed under Basel III to include a system of "top ups" linked to the health of the economy and other factors.
This left banks and investors unsure what level of leverage ratio they would have to meet over time. Simon Hills, executive director in charge of prudential capital at the British Bankers' Association, said bringing forward an actual ratio figure was a good thing.
"It's hard to separate design from calibration, which should be aligned closely with the international framework," Hills said.
"Addressing this issue sooner rather later will bring helpful clarity to investors as well as banks, but ultimately this will be a decision for government which should take into account the impact of the proposal on economic growth," he said.
Critics say the BoE's proposal complicates what is meant to be a simple yardstick for investors to compare banks globally.
A senior banker, who asked not to be named, this week said the complexity of the BoE's leverage ratio plans had been "madness" and that banks had pushed back hard on the proposals. Responses by Britain's bank and building society lobby groups seen by Reuters were highly critical of the proposals.
Global banking regulators will decide in 2015 on the final leverage ratio under Basel III but are split over whether it should be higher.
Banking industry sources have told Reuters that the BoE proposals are expected to result in Britain lifting the minimum leverage ratio for banks to between 4 percent and 5 percent. The United States is also asking banks to have a leverage ratio higher than the Basel minimum.
reuters.com
Banks are on tenterhooks over the leverage ratio they will have to meet, with widespread expectation it will be higher than the 3 percent interim level proposed under a global bank capital accord known as Basel III.
The ratio is a simple measure of capital as a percentage of assets that takes no account of the riskiness of loans. The BoE's Financial Policy Committee (FPC) published a consultation paper in July proposing a framework for the ratio in Britain and some of the responses were critical.
"The committee noted that a common theme in the feedback was around the need for guidance over how the proposed framework would be calibrated," the FPC said in a statement on Thursday. The committee has decided to bring forward from mid-2015 its view on the appropriate calibration or level for the ratio.
"That view will be recorded in its final proposals for the leverage ratio framework, which will be published at the end of October," the FPC statement added.
Lenders will also learn at the end of this month how they fared in an EU-wide health check, although the result of an additional test for top British banks won't be known until the end of the year.
The BoE's consultation paper dismayed banks by moving away from a simple, single figure ratio as proposed under Basel III to include a system of "top ups" linked to the health of the economy and other factors.
This left banks and investors unsure what level of leverage ratio they would have to meet over time. Simon Hills, executive director in charge of prudential capital at the British Bankers' Association, said bringing forward an actual ratio figure was a good thing.
"It's hard to separate design from calibration, which should be aligned closely with the international framework," Hills said.
"Addressing this issue sooner rather later will bring helpful clarity to investors as well as banks, but ultimately this will be a decision for government which should take into account the impact of the proposal on economic growth," he said.
Critics say the BoE's proposal complicates what is meant to be a simple yardstick for investors to compare banks globally.
A senior banker, who asked not to be named, this week said the complexity of the BoE's leverage ratio plans had been "madness" and that banks had pushed back hard on the proposals. Responses by Britain's bank and building society lobby groups seen by Reuters were highly critical of the proposals.
Global banking regulators will decide in 2015 on the final leverage ratio under Basel III but are split over whether it should be higher.
Banking industry sources have told Reuters that the BoE proposals are expected to result in Britain lifting the minimum leverage ratio for banks to between 4 percent and 5 percent. The United States is also asking banks to have a leverage ratio higher than the Basel minimum.
reuters.com
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