BoE: Double cash ratios

MINIMUM capital ratios for banks must be doubled in order to provide sufficient protection against future financial crises, the Bank of England argued yesterday.

In a discussion paper, the Bank slammed current Basel III rules on capital requirements as “too weak”, and said banks should be made to hold equity capital equal to between 16 and 20 per cent of their assets.

The Bank calculates that the increased percentage would hit economic growth by as much as six percentage points, but believes that the extra stability provided would be worth the loss.

The new Basel III requirement, approved last year, is seven per cent of assets – phased in gradually over eight years. “A capital ratio that is at least twice as large as that agreed in Basel would take the banking sector much closer to an optimal position,” the Bank’s report argues.