MAJOR banks should maintain capital ratios of 15-20 per cent of their risk-weighted assets (RWAs), according to FSA chairman Adair Turner.
Speaking at Cass Business School last night, Turner said: “If global regulators were benevolent dictators… they would be wise to choose capital ratios far above even Basel III levels, something more like 15-20 per cent.”
Turner did not propose introducing such requirements, which all of the UK’s major banks would struggle to fulfil, but said that Basel III should be viewed only as a “step” towards a more stringent regime.
The FSA is currently determining what level of capital surcharge it will impose upon systemically important financial institutions (SIFIs) beyond Basel III’s requirement of seven per cent of RWAs. Most observers expect a two to four per cent figure, to bring ratios up to nine to 11 per cent, but Turner’s remarks suggest that a higher number is possible. He said yesterday that imposing a surcharge was “a key policy objective” for this year.
His thoughts will cause alarm for some banks that are trying to balance building up their capital with delivering adequate returns.
During Barclays’ annual results last month, for example, chief executive Bob Diamond presented a capital plan that assumes only a two per cent surcharge.