UK lawmakers to review new capital requirements for banks

By Huw Jones

LONDON, April 15 (Reuters) - The UK parliament's TreasurySelect Committee is to examine further whether banks arerequired to hold sufficient capital to cushion them againstpotential losses, wading into a row between the Bank of Englandand the architect of the sector's reforms.

Earlier this year John Vickers, chairman of the IndependentCommission on Banking (ICB), said the BoE was not making bankshold as much equity capital as the ICB recommended in itsproposals for reforming the sector five years ago.

The accusation touched a raw nerve at the BoE, prompting astring of speeches from top officials who said banks werealready within a hair's breadth of holding enough capital and BoE Deputy Governor Andrew Bailey, who headsbanking supervision, taking a swipe at what he called the "bigequity school".

On Friday the UK parliament's Treasury Select Committee saidafter receiving a detailed response from BoE Governor MarkCarney to Vicker's criticisms that it would now initiate furtherwork on ensuring banks hold adequate levels of capital to remainresilient in an economic downturn.

"Robust levels of capital are as important now as they werea decade ago. These complex issues remain a source ofcontroversy," the committee's chairman, Andrew Tyrie, said in astatement.

In his 13-page letter sent to Tyrie earlier this month andpublished on Friday, Carney said UK banks were required to holdmore capital than was recommended by the ICB, and must alsocomply with other requirements not envisaged by the ICB.

"If capital requirements are increased, some of those costswill be passed on to households and businesses in the realeconomy," Carney wrote.

The BoE's Financial Policy Committee has a remit not to actin a way that damages the capacity of the financial sector tohelp the economy grow over time, Carney added.

A key aim of the Vickers reform was not just to increasecapital but also make it easier to close down failing parts of abank while keeping customer deposits safe.

"It would be inconsistent to discount these benefits whensetting the overal capital framework," Carney said. (Editing by Greg Mahlich)