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* BoE says won't accept any planned restriction on lending
* Barclays CEO calls new leverage target 'crude'
* Ex-BoE official says Barclays sailing 'close to the wind'
By Steve Slater
LONDON, July 1 (Reuters) - Barclays' promise tohave a model relationship with industry regulators is alreadybeing tested as the bank tries to fend off pressure to meetstricter capital requirements without reining in lending.
The Bank of England delivered a quick and sharp response onFriday when Barclays Chief Executive Antony Jenkins said he mayhave to cut lending to UK households and companies if he isforced to meet a 3 percent leverage ratio quickly.
The BoE said it had made it "very clear" that any plans thatrestrict lending would not be accepted.
The leverage ratio measures a bank's capital against totalloans. A higher ratio makes it less vulnerable to the kind ofsharp drop in asset values that pushed some lenders to seekgovernment bailouts during the financial crisis.
Barclays has had testy relations with banking regulators foryears. While it avoided a state rescue during the crisis, itsinvestment banking arm is often a target for critics of afree-wheeling banking culture which they say puts short-termgain before the interests of clients and the wider economy.
Jenkins' predecessor Bob Diamond was ousted in 2012 afterBarclays was fined $450 million for rigging Libor interest ratesand Jenkins said in April he wanted his bank "to become a modelof constructive engagement with regulators".
The BoE's new Prudential Regulation Authority (PRA) toldbanks last month they must have a 3 percent leverage ratio andthat Barclays fell short with a ratio of 2.5 percent afteradjustments. Mutual Nationwide was the only other lender to missthe target.
Jenkins said on Friday he expected to reach agreement withthe PRA in the next four weeks.
But he also questioned the PRA's approach, saying theleverage ratio was a "crude" measure and should only be used tosupplement a capital measure based on how risky assets areperceived to be, or risk-weighted assets.
His comments suggest Barclays will take a tough approach inthe discussions with the regulator in the next two weeks.
Robert Jenkins, a former member of the BoE's FinancialPolicy Committee, said Barclays has many options to reduce itsleverage, including cutting costs, raising equity or paying lessin bonuses.
"The taxpayer should worry that this systemically importantfinancial institution continues to sail close to the wind. Itsboard should worry that its CEO is happy to do so," Jenkins saidin a letter in the Financial Times on Monday.
Barclays had to submit its plan to meet the target bySunday. The PRA will report publicly on whether it is acceptableor needs to be revised.
Barclays said in a presentation last week that itsinvestment bank would continue shrinking and reshaping toimprove returns and cut risk.
Based on Barclays' total assets of 1.6 trillion pounds, itwould need to find 7-8 billion pounds of extra capital to liftits leverage ratio to 3 percent from 2.5 percent.
The bank has already said - and the PRA has accepted - itcan find at least 3 billion pounds of capital, indicating itcould need to find 4 billion more. Alternatively, it could shed133 billion pounds of assets, or 17 percent of its balancesheet, analysts at Deutsche Bank estimated.
Many bankers argue that the leverage ratio is too simplistica measure and penalises low-risk, high-volume businesses such astrade finance and mortgage lending.
Britain is moving early to introduce a leverage ratio - a 3percent cap is due to come in under global rules in 2018 - butother countries may also introduce it ahead of time.
Khalid Krim, head of capital solutions EMEA at MorganStanley, said banks would have to issue more capital.
"This is all going to be a long-drawn out process though.The market has to give banks and regulators time to adjust, andbanks are not going to be under imminent pressure to raisecapital," he said.
Andrew Bailey, head of the PRA, is expected to be quizzed onthe issue when he appears before UK lawmakers on Tuesday. (Additional reporting by Natalie Harrison at IFR; editing byTom Pfeiffer)
