Bank of England says may be case for extra leverage ratio for banks

(TXT)

LONDON, July 11 (Reuters) - The Bank of England said onFriday that big British banks and lenders might need to setaside more capital than planned under global rules being drawnup to prevent a repeat of the financial crisis.

Launching a public consultation on a new so-called leverageratio, the BoE said many financial institutions may have tocomply with a requirement to set aside funds on top of aproposed minimum of 3 percent of their capital.

"There may be a case to introduce a supplementary leverageratio component to a subset of firms (e.g. ring-fenced banksand/or systemically important institutions) whose failure wouldbe most destabilising for the financial system," the BoE said ina consultation paper.

Such a supplement would effectively cover the bulk ofBritain's banks.

British lawmakers want a leverage ratio of 4 percent orabove, higher than the proposed global rule for 3 percent,saying tougher measures are needed to ensure taxpayers are notasked to bail out banks as they were in the financial crisis.

British banks have been required to meet the 3 percenttarget by Jan. 1, 2014, forcing some to raise more capital.

BoE Governor Mark Carney has previously said that 3 percentmight not be high enough.

The U.S. Federal Reserve has insisted on a leverage ratio of5 percent and above for U.S. banks.

The BoE consultation paper did not propose any specificfigures for what the leverage ratio, including any supplements,should be.

Global regulators are not due to agree on the level of aleverage ratio for the industry worldwide until 2015 or later,given the disagreements between countries.

The discussions have become increasingly charged as manyregulators no longer fully trust the way banks calculate theirmain core capital buffers. They are based only risk-weightedassets, the value of which is open to debate.

The leverage ratio is based on total assets held by a bankand is therefore seen as less open to interpretation.

The BoE said in its consultation paper that anysupplementary leverage ratio would have to be made up oftop-quality capital.

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)