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* BoE outlines two possible leverage ratio supplements
* Supplements would likely take effect from 2019
* Bankers say plans go too far, create complexity (Adds banking industry reaction)
By Huw Jones
LONDON, July 11 (Reuters) - The Bank of England (BoE)proposed on Friday that Britain's biggest banks should set asidefrom 2019 more capital than planned under global rules beingdrawn up to prevent a repeat of the financial crisis.
Launching a public consultation on a new leverage ratio -the amount of capital a bank has to hold as a percentage oftotal assets - the BoE said many financial institutions may haveto set aside funds on top of a global minimum that has yet to befully agreed.
A leverage ratio of 3 percent, the provisional global level,means a bank must hold capital equivalent to 3 percent of itstotal assets, regardless of how risky they are.
"There may be a case to introduce a supplementary leverageratio component to a subset of firms, for example ring-fencedbanks and/or systemically important institutions, whose failurewould be most destabilising for the financial system," the BoEsaid in a consultation paper.
This would cover the bulk of Britain's banks as they havealready been deemed to require a ring-fence of extra capital toprotect depositors, hold extra capital because of their size, orboth.
The BoE is proposing two types of supplements, a permanentone for some lenders, and a temporary one to cool credit booms.Some banks would have to comply with both in some circumstances.
The supplements may have to comprise the most expensive formof capital, thereby putting limits on a bank's ability to usecheaper hybrid debt known as contingent capital or Cocos.
Members of parliament's influential treasury committee wanta minimum leverage ratio of 4 percent or above, saying toughermeasures are needed to ensure taxpayers are not asked to bailout banks like in the financial crisis.
British banks such as Barclays, HSBC,Lloyds and RBS already have to meet a 3 percenttarget, forcing some to raise more capital.
The British Bankers' Association (BBA) said the proposalscomplicated global plans for a simple, internationallyharmonised leverage ratio.
"Adding in complexity runs the risk of creating its owndistortions and penalising safer lending. Our members will workwith the regulator to identify problematic areas a more complexleverage ratio would introduce," Simon Hills, an executivedirector at the BBA, said in a statement.
BoE Governor Mark Carney has previously said that 3 percentmight not be high enough but the consultation paper did notpropose any specific figures for what the leverage ratio,including any supplements, should be.
The impact of a tougher leverage ratio won't be known untilthe BoE sets actual levels later on and details phase-inperiods.
The consultation suggests alternatives to a supplement, suchas a floor or minimum capital for particular assets.
GOING TOO FAR?
Global banking regulators on the Basel Committee have agreedto introduce a leverage ratio for banks across the world, andthe BoE will use the committee's definition of a leverage ratiofor supplements.
Basel is not due to agree on the level of a leverage ratiofor the industry worldwide until 2017, and it will be enforcedfrom January 2018. There are splits among its members overwhether 3 percent is high enough.
The committee describes the world's first common leverageratio as a backstop to a bank's core measure of capital which iscalculated in relation to riskiness of assets.
"The Bank of England's proposals go too far. This moves awayfrom (the) simple backstop notion in Basel," a UK bankingindustry official said.
The U.S. Federal Reserve has already insisted on a leverageratio of 5 percent and above for U.S. banks, and investors maywant to see that all big banks globally are equally strong.
"Where the Americans go, we tend to follow. It's got to be adecent bet that this is where we all end up," said SimonGleeson, a financial lawyer at Clifford Chance
The discussions over the leverage ratio have becomeincreasingly charged as many regulators no longer fully trustthe way banks calculate their main core capital buffers. Theyare based on only risk-weighted assets, the value of which isopen to debate.
The consultation is due to run until Aug. 14. A final reviewis due to be published in November. (Reporting by Huw Jones; Editing by William Schomberg, JohnStonestreet and Mark Potter)
