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* Review terms finalised early 2014, year to complete
* Parliament to approve any recommendation before election
* Lawmakers push for faster, higher leverage ratio
By Huw Jones and Matt Scuffham
LONDON, Nov 26 (Reuters) - Britain's finance minister GeorgeOsborne has asked the Bank of England to decide whether it needsmore powers to control banks' risk-taking.
His intervention is the latest sign that Britain is goingbeyond international banking rules to curb its financial sectorafter taxpayers paid billions of pounds to rescue several banksduring the 2007-09 financial crisis.
The Bank's Financial Policy Committee can already shape theregulation of Britain's financial system. It has powers to forcebanks to hold more capital but has no direct say over a separatetool for reining in big banks' balance sheets, a so-calledleverage ratio.
Global regulators, keen to make banks safer after thefinancial crisis, are focussing on this leverage ratio as a wayto curb risk.
The ratio is due to come in from the start of 2018, butlawmakers, including Andrew Tyrie, chairman of the influentialTreasury Select Committee, want the FPC to have the power to setbank leverage ratios immediately and at levels higher than thenew international standards, part of a new bank regulationregime known as Basel III.
"Now is an appropriate time for the FPC to consider whetherand when it needs any additional powers of direction over theleverage ratio," Osborne said in a letter to Bank of England Governor Mark Carney.
Osborne's action accelerates a review of possible FPCleverage ratio powers that had been anticipated at a later date.
The review would also have to show that implementing theleverage ratio faster or higher than the Basel accord would helpUK financial stability, Osborne said.
In his reply, Carney agreed that the time was right for sucha review and he expected the FPC would be able to complete itwithin 12 months.
Speaking to lawmakers in parliament later on Tuesday, Carneyunderscored the importance of leverage tools for policymakers.
"If I could pick one element that was essential to theperformance of the Canadian banking system during the crisis itwas the presence of a leverage ratio," he said.
BANK SAFETY
The ratio measures the amount of capital a bank holds as apercentage of its assets (loans), without adjustments for risk.A leverage ratio of 3 percent, for example, means a bank canlend up to 33 pounds for each pound of capital it holds inreserve.
Tyrie welcomed the review. "That power will be an essentialpart of the bank's toolkit for improving the safety of thebanking system," he said on Tuesday. "The bank's review will beabout how the FPC will exercise that power, not whether itshould request it."
Osborne was "open" to the Bank's review recommendingimplementation of the leverage ratio ahead of a globally agreedtimetable, the letter said.
He also said Britain might need to set a baseline leverageratio higher than a globally-agreed 3 percent level - somelawmakers want a ratio of at least 4 percent.
Anthony Browne, chief executive of the British Bankers'Association, said it was important that UK banking regulationwas in line with international standards.
Other banking industry officials and opposition partylawmakers said Osborne's announcement was an attempt to head offsome of the amendments being put forward on Tuesday to toughenup a bill on new banking rules.
Bankers said the review would add to regulatory uncertaintyin the short-term although it would provide greater clarity oncecompleted.
"It will, at the very least, help the UK banks understandwhat will be expected of them over a known time frame," saidKevin Burrowes, a financial services expert at consultant PwC.
Carney said the FPC would publish some "high-levelconsiderations" on the role of the leverage ratio within theoverall capital framework of UK banks in its bi-annual FinancialStability Report on Thursday.
The FPC will need to assess how the leverage ratio wouldaffect the ability of banks to keep lending, Carney said.
The leverage ratio calculation treats all assets on a non-risk-weighted basis, meaning that a big home loans lender, couldbe penalised more than an investment bank that takes more risk.
Britain's financial regulator said in June that 2 ofBritain's top 8 lenders - Barclays and Nationwide -fell short of a 3 percent leverage ratio.
Barclays had to raise 5.8 billion pounds ($9.39 billion)from shareholders to help plug the capital shortfall.
The Banking Reform Bill, which the coalition governmentsought to enact following the crisis, will be debated inBritain's upper house of parliament on Tuesday and Wednesday.
