Bank of England condemns lobbying by banks against new rules

Deputy governor of the Bank of England, Paul Tucker has called for new measures to be introduced before the end of the year

City regulators have brushed aside complaints by Barclays and Nationwide over tough new liquidity rules, saying UK banks would need to put them into effect as soon as possible, years ahead of an international deadline of 2018.

The deputy governor of the Bank of England, Paul Tucker, responsible for financial stability, said lobbying against the change by the banks was "completely unacceptable", and regulators would not be deflected "one iota" from the task.

He told MPs the rules should be introduced before the end of the year to curb the risk exposure of Britain's highly leveraged banks.

Barclays and Nationwide complained vociferously against the "shock" decision by regulators last month to fast-track the new rules, which they said would harm their finances and ability to lend.

At a meeting last week Mervyn King, the former Bank of England governor, told MPs that large banks' executives had lobbied the Treasury and No 10 to block the rule changes before 2015.

Barclays hinted that it could restrict lending to households and businesses if the rules were to bite this year.

The row comes as US regulators on Tuesday made clear they intended to push ahead with the new rules on bank borrowing levels and higher reserves ahead of deadlines established by the Bank for International Settlements.

Much to the annoyance of the head of JP Morgan, Jamie Dimon, and of highly leveraged banks such as Wells Fargo, Dan Tarullo, the Federal Reserve governor in charge of regulation, promised a stricter lending ratio, tying the amount banks can lend to the equity held by shareholders.

He said the reserve was close to putting forward a plan that would place a tougher cap on leverage for US banks.

"The Basel III leverage ratio seems to have been set too low to be an effective counterpart to the combination of risk-weighted capital measures that have been agreed internationally," he said.

Banks have complained vociferously that regulators are demanding they move more quickly to safer levels of capital and lending.

The Tory MP Andrew Tyrie, who heads the Treasury select committee, said he was concerned that the banks were throwing their weight around.

Andrew Bailey, who heads the Prudential Regulation Authority, which will monitor banks and insurers, confirmed that George Osborne was approached by several banks over the new rules, but that the PRA's independence was confirmed by the chancellor.

"We are certainly aware that there are conversations that happened between the banks and officials and ministers," he said. "The thing that concerns me is that we are trying to build, frankly, a transparent process that has accountability in it."

Martin Taylor, a former Barclays chief and an external member of the financial policy committee, which will guard the financial system from a repeat of the 2008 crash, said: "The reason the banks are squawking is that the PRA and Andrew Bailey are doing their job, and you might say about time too."

Bailey said that banks were behind schedule in cleaning up their balance sheets after suffering extra costs from the payment protection insurance scandal and the euro crisis last year.

Paul Tucker told MPs new regulations should be implemented sooner to curb the risk exposure of Britain's highly leveraged banksHe said he wanted the rule in place as soon as possible and that regulatory staff were looking at banks' plans for how they could implement it.

"We have made clear that we will go through these with the public, with the institutions during the course of this month. And we will publish. We will make clear what the outcome of that is," Bailey told MPs.

The PRA said on 20 June that it would set a leverage ratio of 3% for UK banks, which would limit the amount they could lend relative to their capital.

Barclays has a leverage ratio of 2.5% after adjustments, while the Nationwide could only manage a 2% ratio.

Tyrie said: "FPC members today made clear that they feel a 3% leverage ratio is an appropriate minimum backstop and that the FPC can make recommendations in this area, even without an explicit power of direction. Bank lobbying of government only serves to reinforce the need for the power to set the leverage ratio to lie with the independent FPC, not the Treasury."

Lloyds is expected to split 600 branches into a separate business next year to increase competition in the banking sector following an attempt to sell the new business to the Co-op, which fell through.

The MP Jesse Norman asked Bailey why the Co-op's reported "lack of reserves" came as a surprise in December 2012 to Lloyds, when regulators were supposed to be aware of shortfalls.

Bailey said regulators discovered in 2011 that the Co-op was suffering from poor leadership and governance, coupled with a shortage of capital and liquidity. He said the Co-op was made aware of its concerns and he understood that Lloyds was informed.

The collapse of the deal proved an embarrassment to the Treasury, which had trumpeted it as part of wider reforms of the banking sector to make it more competitive.

Tyrie said there was a discrepancy between the testimony of Lloyds chiefs and the regulator.

"The chairman of Lloyds, Sir Win Bischoff, told the Treasury committee that Lloyds became aware of a potential capital shortfall at the Co-operative Group in December 2012. Andrew Bailey today said that he told the Co-op's board that it should inform Lloyds of the regulator's concerns, including over its capital levels, more than a year beforehand.

"[Bailey] also told us he has evidence to suggest his requests were complied with. The Treasury committee will want to look at whether the regulator's message got through, how it was conveyed and what, if any, action was taken."

Article Source : http://www.guardian.co.uk

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