BoE says UK banks within "hair's breadth" of capital adequacy target

By Huw Jones

LONDON, March 7 (Reuters) - A Bank of England (BoE)policymaker said on Monday that Britain's banks would not needmuch more capital to comply with its solvency rules, as thecentral bank tries to quell talk that another major increase incapital requirements is on the way.

Despite rising volatility and declining prices for bankshares as well as disappointing earnings, core capital levelsaverage nearly 13 percent, the bank's executive director forfinancial stability strategy and risk, Alex Brazier, said.

"All ghosts of crises past. But one ghost has not returnedto haunt us. Questions about returns haven't translated asthey've done before into questions about resilience," he told abanking conference in Washington.

The BoE has been locked in a public argument with JohnVickers, architect of a reform that will force Britain's banksto ring-fence their retail arms with extra capital from 2019.

Vickers has said that banks should hold more capital thanwill be required by the central bank, but Brazier said the 13.5percent target goes beyond internationally agreed norms.

"So on current measures, we expect major UK banks to fund noless than 13.5 percent of risk weighted assets with Tier 1equity," he said.

"After a long march to build capital strength, UK banks arewithin a hair's breadth of that today. And the rewards ofgreater resilience are being reaped."

The BoE has signalled it plans to impose in stages aso-called countercyclical capital buffer of one percent though,to a large extent, this will just involve relabelling capitalthat banks already hold to give clarity to lenders andinvestors.

The aim is to build up a clearly defined pot of capital tobegin covering losses from soured loans in a downturn withouteating into core buffers immediately.

"The Bank will have a bias to acting early and gradually. Itexpects to be adding around 1 percent to the countercyclicalcapital buffer on UK exposures of all banks, even before theoverall threat of future losses looks high," Brazier said.

"And if threats materialise, or shrink, the Bank will reduceits expectation for capital buffers back towards the baselinelevel."

The BoE might begin introducing the countercyclical bufferrequirement at the end of March, when its Financial PolicyCommittee issues a statement. (Editing by Louise Ireland)