Britain wants powers to impose tougher curbs on banks

By Huw Jones

LONDON, Feb 13 (Reuters) - Britain wants to give its riskwatchdog powers to impose tougher limits on how much banks canextend their debt, a step which could put it at odds withglobally agreed rules.

The country has been taking a hard line approach afterhaving to bail out many of its banks, and wants to tightencontrols over a financial sector that is many times the size ofits economy.

While Britain broadly backs so-called Basel III global rulesaimed at preventing a repeat of the 2007-09 financial crisis, itwants room for manoeuvre to impose tougher measures when itdeems necessary.

The Bank of England's Financial Policy Committee (FPC), setup to plug supervisory gaps highlighted by the crisis, can forcebanks to increase their capital buffers.

Britain's financial services minister Greg Clark told apanel of lawmakers on Wednesday he also wanted the committee tobe able to temporarily impose stricter leverage curbs on banksthan the limit laid down by Basel III, when financial stabilitywas threatened.

The leverage ratio measures a bank's total assets againstits equity, and under the Basel III accord, it has been set at a3 percent, meaning leverage should be no more than 33 timesassets.

"The government's view is we want to give the FPCtime-varying leverage powers and that is our intention," Clarktold the Treasury Select Committee.

The lawmakers on the Treasury committee want to go furtherthan the government and impose a permanent tougher limit, atleast 4 percent, or leverage of no more than 25 times assets,but the government has rejected this call.

Clark said the European Union was finalising a law to putBasel III into effect and that Britain hoped it would includewriggle room for all member states to vary bank leverage fromthe global norm when needed.

"We are arguing for it very strongly in Europe," Clark said.

A senior EU lawmaker said this week a deal on the law may bepossible on Tuesday and Clark was unable to say what wouldhappen if Britain's request was rejected.

The FPC's core role is to stop asset bubbles, oftendescribed as taking away the punch bowl.

Clark signalled the government would generally back suchtough decisions when warranted and not try to undermine thecommittee with a running commentary on its actions.

Nevertheless, the committee "should not be entirelycloseted" and its members should be open to hearing directlyfrom banks and other parts of the industry, he added.

After having to shore up several lenders, including RoyalBank of Scotland and Lloyds, Britain hasditched its "light touch" pre-crisis approach to regulation andbecome one of the world's leading hawks.