BoE says UK bank capital levels "not in the wrong ballpark"

By Huw Jones

LONDON, Oct 30 (Reuters) - This year's stress tests ofBritain's top banks won't become an excuse for regulators toratchet up capital requirements without justification, a seniorBank of England official said on Friday.

Alex Brazier, executive director for financial stabilitystrategy and a member of the BoE's Financial Policy Committeerisk watchdog, said the central bank was mindful of how settingcapital requirements has real economic consequences.

"It is incumbent on us not simply to ratchet up, or down,the severity of the stress scenario over time," Brazier told aconference on bank stress testing at the London School ofEconomics.

"As policymakers, we have a responsibility to ensure thatcapital requirements change only because the risks change,"Brazier said.

"The side of the bed we exited on the morning of decidingthe scenario should not feature in that dataset. It hasn'tbefore. And this approach ensures it won't in future."

Brazier is the third senior BoE official in the past twoweeks to have sought to reassure banks they are holding enoughcapital.

BoE Deputy Governors Andrew Bailey and Jon Cunliffe havespoken in similar terms, emphasising how strides in making banks"resolvable" - meaning they can more easily be wound downwithout causing market mayhem if they fail - mean largeincreases in capital from current levels won't be needed, or aredesirable.

The big banks will also have to hold a cushion ofbail-inable debt that can be written down to replenish corecapital if needed, without calling on taxpayers for cash.

This meant capital levels under existing and planned ruleswere therefore "not in the wrong ballpark", Brazier said.

Holding very high capital ratios all the time has itssupporters among regulators, but would not make macroeconomicsense, he added.

His comments were timed ahead of results on Dec. 1 of theBoE's stress tests of HSBC, RBS, Lloyds, Barclays, Santander UK, StandardChartered and Nationwide Building Society.

The comments are also the latest from the BoE to mark ashift in tone as the government is keen to move on from abruising financial crisis to a more accommodative "newsettlement" with the sector. (Editing by David Holmes)