British banks may seek outside checks on published capital ratios

By Huw Jones

LONDON, Jan 29 (Reuters) - Banks in Britain may end uphiring auditors to endorse the capital ratios they publish toincrease investor confidence, an accounting body said onThursday.

The ICAEW said it was working with the Bank of England'ssupervisory arm, the Prudential Regulation Authority, on whetherconfidence in capital ratios, a core benchmark of health, wouldbe increased if they were formally audited.

"ICAEW is considering whether and how external assurancecould increase confidence in bank capital ratios," Iain Coke,head of the ICAEW's financial services faculty, said in astatement.

"We are working closely with the Prudential RegulationAuthority on this project. We are currently taking widerstakeholder input and aim to publish proposals for consultationin the second quarter," Coke said.

Such a step would go further than new global rules publishedthis week from the Basel Committee of banking supervisors thatset out stricter requirements on how lenders must publiclydisclose their capital ratios from the end of 2016.

The Basel rules require a senior manager at the bank toattest in writing that the disclosures have been compiled withboard approved internal controls.

Coke said the Basel rules coupled with a separate UK reformfor vetting senior bankers with its 'guilty until proveninnocent' presumption, could see bankers asking for externalauditing of ratios to give them additional assurance.

Regulators suspect banks of manipulating internal modelsused for calculating capital requirements after finding bigvariations in the amount of capital held to cover the samerisks.

The BoE is already looking at whether banks who use internalmodels should also publish ratios calculated under a globallyagreed "standardised" approach for measuring risks in order togive investors an additional check.

Confidence in capital ratios is becoming more critical asbanks build a new cushion of debt that can be turned into equityif core capital ratios fall to a certain level.

Basel is also consulting on whether banks must hold aminimum amount of capital irrespective of what internal modelssay they should be holding. (Reporting by Huw Jones; Editing by Elaine Hardcastle)