UK banks slam leverage plans as too complex, may increase risk

By Steve Slater

LONDON, Sept 14 (Reuters) - Britain's banks have slammedplans to impose new capital rules for lenders and said the"leverage ratio" proposals are far too complex and couldencourage banks to take more risks.

"There is a risk that the current proposals will increasecosts for bank customers and conflict with other rules that seekto make banks safer," said Simon Hills, a director at theBritish Bankers' Association (BBA).

The Bank of England (BoE) has proposed changes to theframework for the leverage ratio - which is a measure of equityas a percentage of assets, without adjusting for riskiness.

The proposals put forward are expected to result in Britainlifting the minimum leverage ratio for banks in the future,possibly to 4 or 5 percent, bank industry sources told Reuterslast week.

Banks currently need to have a leverage ratio of at least 3percent, in line with the global standard.

The BoE's Financial Policy Committee (FPC) is due to revealchanges to the leverage ratio framework in November, and gavebanks until Friday to respond.

The FPC will not set a new minimum level for the leverageratio in that review and has not said when it will. Industrysources told Reuters that could happen around mid-2015.

"We believe that they (the proposals) are too complex andpotentially damaging," Hills said.

The BBA's response to the consultation, a copy of which hasbeen seen by Reuters, said the plans for change go too far andwould undermine the leverage ratio's simplicity, which isregarded as one of its attractions.

They would also "lead to much higher minimum levels of theleverage ratio than we had previously envisaged, resulting inbanks having to raise yet more capital and to reconsider theirbusiness models and customer propositions," the BBA said.

Banks could restrain their dividend payouts to help improvetheir leverage, but are not expected to raise equity as long asthey are given several years to meet the new rules, analystshave said.

The BBA's response echoes criticism of the proposals made byBritain's Building Societies Association (BSA).

The BSA said the proposals were a "primitive approach" thatdiscriminated against them, as low-risk residential mortgagesmake up the bulk of their loan books. (Reporting by Steve Slater; Editing by Mark Potter)