Bank of England to unveil bank leverage ratio plans this month

By Huw Jones

LONDON, Oct 2 (Reuters) - The Bank of England will telllenders at the end of this month what their key measure ofinsulation against future crises should be, bringing forward akeenly-awaited announcement from 2015 after draft proposalsworried banks and lawmakers.

Banks are on tenterhooks over the leverage ratio they willhave to meet, with widespread expectation it will be higher thanthe 3 percent interim level proposed under a global bank capitalaccord known as Basel III.

The ratio is a simple measure of capital as a percentage ofassets that takes no account of the riskiness of loans.

The BoE's Financial Policy Committee (FPC) published aconsultation paper in July proposing a framework for the ratioin Britain and some of the responses were critical.

"The committee noted that a common theme in the feedback wasaround the need for guidance over how the proposed frameworkwould be calibrated," the FPC said in a statement on Thursday.

The committee has decided to bring forward from mid-2015 itsview on the appropriate calibration or level for the ratio.

"That view will be recorded in its final proposals for theleverage ratio framework, which will be published at the end ofOctober," the FPC statement added.

Lenders will also learn at the end of this month how theyfared in an EU-wide health check, although the result of anadditional test for top British banks won't be known until theend of the year.

The BoE's consultation paper dismayed banks by moving awayfrom a simple, single figure ratio as proposed under Basel IIIto include a system of "top ups" linked to the health of theeconomy and other factors.

This left banks and investors unsure what level of leverageratio they would have to meet over time.

Simon Hills, executive director in charge of prudentialcapital at the British Bankers' Association, said bringingforward an actual ratio figure was a good thing.

"It's hard to separate design from calibration, which shouldbe aligned closely with the international framework," Hillssaid.

"Addressing this issue sooner rather later will bringhelpful clarity to investors as well as banks, but ultimatelythis will be a decision for government which should take intoaccount the impact of the proposal on economic growth," he said.

Critics say the BoE's proposal complicates what is meant tobe a simple yardstick for investors to compare banks globally.

A senior banker, who asked not to be named, this week saidthe complexity of the BoE's leverage ratio plans had been"madness" and that banks had pushed back hard on the proposals.

Responses by Britain's bank and building society lobbygroups seen by Reuters were highly critical of theproposals.

Global banking regulators will decide in 2015 on the finalleverage ratio under Basel III but are split over whether itshould be higher.

Banking industry sources have told Reuters that the BoEproposals are expected to result in Britain lifting the minimumleverage ratio for banks to between 4 percent and 5 percent. TheUnited States is also asking banks to have a leverage ratiohigher than the Basel minimum.

(Additional reporting by Steve Slater; editing by Keith Weir)