Sir John Vickers, who chaired the Vickers Commission into reforming the banks, told the Oxford-based Regulatory Policy Institute on Monday that, in a “blue-skies” world, banks’ core tier-one capital ratios should be 20 per cent, and not the 10 per cent previously recommended by his own commission and which is now the standard for British banks.
Sir John also said that if banking regulators focus more on equity-to-total asset ratios and less on core tier-one ratios then it could be argued that some UK banks are still undercapitalised.
He highlighted that the PRA ran an exercise this summer with the UK’s top eight lenders, imposing a 3 per cent leverage requirement after factoring in loan losses and other charges, and two major high-street names fell short of the required standards.
Neither the British Bankers’ Association nor the PRA wanted to comment on Sir John’s remarks or the PRA’s exercise.
However, increasing the banks’ capital ratios is likely to reduce the level of collateral that they can use in lending to UK businesses, said Adrian Coles, director-general of the UK’s Building Societies Association.
He said: “The BSA opposes any move to greatly increase either total capital or the leverage ratio beyond what has already been agreed internationally and currently being implemented across the EU.
“The EU has already taken onboard the principle of leverage ratios differentiated by the overall risk of a lender’s business model and the BSA has supported this line and is against a one-size-fits-all ratio larger than what has already been agreed to.”
With the Vickers Commission’s 10 per cent rule being enforced by the UK’s PRA across the country’s banking sector, lenders today have capital levels that are on average three times higher than before the global banking crisis was triggered by the collapse of Lehmans in September 2008.