Minister warns banks to expect tougher leverage rules in 2018

Tim Wallace
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BRITAIN’S banks will have to cut lending or raise capital requirements in 2018 under plans being considered by the government, Treasury minister Greg Clark warned yesterday.

Until then, banks will face a ratio of three per cent, capping leverage at 33-times capital in line with the international Basel III rules.

But MPs and peers in the Parliamentary Commission on Banking Standards, as well as banking reformer Sir john Vickers, want that raised to four per cent, a 25-times cap.

The government fears that would stifle lending at a time when they want banks to offer more loans, so want to stick with the three per cent limit for the next five years.

But Clarke yesterday said the government agrees in principle that the tougher limit would promote safety and stability in the sector, and should be considered in 2017 for 2018.

“Vickers did not recommend an early increase in the leverage ratio, to have a minimum effect on lending while the economy is recovering,” Clark said. “We would like to have one, but in line with Vickers it is right to have that consideration in 2017 with a view to introducing it later.”

Clarke added building societies often have high leverage ratios despite their low risks, and could be damaged wrongly by a change.