Tyrie: FPC should set bank leverage ratio at 3%

The power to set the minimum percentage of equity banks must hold on their balance sheet should be held by the Financial Policy Committee to avoid the influence of lobbyists, the Treasury Select Committee has said.

Commenting on yesterday’s evidence session with members of the FPC, Andrew Tyrie, chairman of the TSC, said bank lobbying of government only reinforces the need for leverage ratio requirements to be set by an independent body.

The FPC has called for a 3 per cent leverage ratio for banks, meaning they would have to hold 3 per cent equity against their entire balance sheet.

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Mr Tyrie said: “FPC members today made clear that they feel a 3 per cent leverage ratio is an appropriate minimum backstop and that the FPC can make recommendations in this area, even without an explicit power of direction.

“This is a step in the right direction. Any further announcements should be communicated clearly and in good time.

“The Banking Commission recommended that the FPC immediately be given the power to set the leverage ratio. If the government continues to resist handing the FPC this power, the Commission also recommended that the FPC should publish its own assessment of the appropriate leverage ratio.

“They should now do so.”