Unilateral 10pc capital ratios for UK retail banks

UK RETAIL banking operations must hold more capital than Basel III demands, the Independent Commission on Banking (ICB) said yesterday.

ICB chair Sir John Vickers said that the retail activities of UK banks should be ring-fenced so that they maintain a standalone capital ratio of 10 per cent “whether or not this is agreed internationally”. He added that “without ring-fencing, capital requirements higher than 10 per cent across the board might be called for.”

The commission also thinks that non-retail operations should maintain a ten per cent ratio, but said that it would be preferable to achieve international agreement on the matter.

“While the seven per cent equity ratio established by [Basel] is an important step in increasing banks’ loss-absorbing capacity, it is clearly insufficient for systemically important banks,” the ICB’s interim report said.

If debt instruments could not be converted to equity to absorb losses in a crisis, a case “could quite easily be made for going higher”, it added.

Analysts said banks accepted a ten per cent ratio was “the new normal”.