Banks told to come clean on capital levels

Tim Wallace
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BANKS make it almost impossible for investors and analysts to properly understand their real health because they pump out reams of unclear and disorganised data, top finance regulator Andrew Bailey said yesterday.

The head of the Prudential Regulation Authority told a committee of MPs that dodgy accounting rules combined with the reliance on banks’ own internal risk weighting models means different banks will hold widely varying levels of capital for the same asset.

“We need more transparency. I talk to a lot of investors and analysts who have lost confidence in the system, and that is a bad place to be in,” Bailey told the Treasury Select Committee. “The Financial Stability Board recommends banks should adopt more meaningful disclosures – so don’t dump data, have meaningful disclosure, allow analysts to properly map this.

“I have told banks the best thing they can do is implement that.”

Bailey and other members of the Financial Policy Committee added that banks need to raise more capital to withstand potential future shocks, such as the Libor fines and PPI payouts which have proven far bigger than the authorities initially expected.

Meanwhile external FPC member Michael Cohrs said the Bank of England needs more scrutiny and more contact with parliament to make sure there is not a public backlash if it moves to stop a housing bubble by making it harder for banks to lend to, for example, those wanting large loans.

“I believe if the party ever gets started in future and we take the punchbowl away, there will be a huge row. Only if we’re seen as highly accountable will it be acceptable to you and your constituents,” he said.