It’s open season on banks again

Tim Wallace
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BANKERS faced a series of fresh attacks yesterday, as Labour pushed for tougher licences for bankers and the chancellor opened the door to harsher lending controls.

Labour won a vote in the House of Lords last night to force bankers to face regular checkups from regulators, and risk losing their licence if they do not follow professional development plans.

All risk-taking bankers will also have to hold specific qualifications for the first time if the amendment is accepted by the government, which will consult with regulators.

Meanwhile George Osborne has asked the Bank of England’s financial policy committee (FPC) to look at whether it should be given the power to set banks’ leverage ratios.

This is a shift from his previous view, which had insisted the FPC wait several more years for the power, and follows his U-turn on an interest rate cap for payday loans.

Mark Carney, the Bank governor, made clear in a letter to Osborne and at a parliamentary hearing that he is keen to get the powers.

“A leverage ratio is an integral part of the capital framework of the banking sector,” he told MPs. “It is absolutely necessary. If I could pick out one element which was essential to Canadian banks’ performance in the crises it is the leverage ratio.”

However, there are worries that the Bank could make the ratio tougher, hurting banks and hitting lending.

So far banks are on track to meet a three per cent leverage ratio, holding assets of 33 times their capital base.

But FPC members including Andy Haldane have called for a four per cent ratio, a 25-times cap, which would squeeze those with large amounts of low risk assets like prime mortgages.

“George Osborne is well aware of the trade off here – increasing the leverage ratio means reducing lending,” said a source at a major bank. “So he will have to be very strongly persuaded if he is to let the FPC go over the international three per cent ratio.”

Analysts hope the length of the review – which will run for a year­ – will help. “Carney has paid at least lip service to the idea of putting the UK on a level playing field internationally, and the length of this review buys time for some consideration of a sensible result,” said Investec’s Ian Gordon.

The latest discussion rounds off a terrible month for the sector, which has seen a drugs scandal hit the Co-op Bank and new claims that RBS forced good companies to the wall so it could strip their assets – claims that Carney yesterday said should be investigated and punished “to the full extent of the law”.

But banks were spared a new threat to break up all lenders if any single bank tries to undermine the incoming ring-fence separating retail and investment banking operations. Former chancellor Lord Lawson and Archbishop Justin Welby had tried to pass an amendment to the ring-fence, but were defeated in a vote last night.