Bank of England to assess leverage ratio

Chancellor George Osborne and Bank of England governor Mark Carney have agreed that the Bank should conduct an assessment of the leverage ratio. The leverage ratio a ratio of a bank's lending to its equity.

The Bank of England has put in place a minimum leverage ratio - introduced by former governor Sir Mervyn King. It has been attacked by opponents as choking off credit as banks are forced to limit lending.

In a letter to the chancellor, Carney said that "the time is now right to commission" a review of the leverage ratio.

My view has been that a minimum leverage ratio is a vital component of the overall capital framework. As said to the Treasury Committee in February, if were to choose just one reason why Canadian banks fared as as they did through the crisis, it would be because they were subject to a leverage standard. It is, therefore, crucial that we have an appropriately calibrated minimum leverage ratio for UK banks.

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