Sir Mervyn King, the outgoing Governor of the Bank of England, as well as his
successor, Mark Carney, currently governor of the Bank of Canada, have
expressed support for a higher ratio to curtail risk-taking by lenders.
Increasing the ratio would force banks to either raise more capital or reduce
the size of their balance sheets if they were found to be in breach of the
Giving evidence to the Commission, Bill Winters, the former co-chief executive
of US investment bank JP Morgan, admitted that the cap would increase the
cost of capital for banks, but said this was justified by the “value that we
get as a society from having safer banks”.
The Commission has not said how high it thinks the cap should be, but is
expected to add further detail when it publishes its final report in May.
The Commission also took issue with the way the Government planned to
implement its proposal that ministers and regulators be handed the power to
split up a bank found to be in breach of the incoming ring-fencing rules
between retail and investment banking operations.
Earlier this year, the government said it supported the “electrification” of
the ring-fence so that a bank could be forcibly separated if it was deemed
to be undermining the ring-fence intended to ensure that retail depositors
money is safe in the event of a new financial crisis.
However, Mr Tyrie said a new reserve power was needed for a “full,
industry-wide separation” in the event that the ring-fence was deemed to be
an ineffective safeguard. He added that the Commission believed the
Government had “failed” to address its recommendation that the ring-fence
should be subject to a periodic review to ensure it was “doing its job”.
The Commission’s report comes as the Banking Reform Bill will today go through
its second reading in Parliament.
Capital rules for banks ‘still need to be tougher’ – Telegraph.co.uk
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