Miles: Banks could hold 20pc buffers

INCREASED capital buffers should not place excessive strain on banks’ profits, the monetary policy committee’s David Miles said yesterday.

Miles believes forcing banks to hold 18-20 per cent of risk-weighted assets in the form of equity – more than double the basic seven per cent level set by the incoming Basel III rules, and more similar to the levels proposed by the Independent Commission on Banking (ICB) on 12 September – should not have an enormous impact on lending costs.

“If risk-weighted assets are, let’s say, half of total assets then in terms of overall level of funding, 20 per cent relative to risk-weighted assets would be only 10 per cent overall in the form of equity and 90 per cent in the form of debt,” he told the European supervisor education initiative conference in Luxembourg.

Cutting leverage from around 30 times to 15 times could raise the cost of funding by 20 to 40 basis points, he said, saying “this is not negligible, but it is not enough to wreck the economy”.