BoE policymakers wrestle over when banks need more capital
LONDON – Bank of England policymakers on Wednesday highlighted intense behind-the-scenes debate over when British banks should set aside more capital to protect them from future economic downturns.
The Bank of England’s Financial Policy Committee in December agreed that the amount of extra capital the banks should set aside for this purpose should be 1 percent of their risk-weighted assets, compared with zero percent at present.
But no decision has been taken as to when the banks should start to put aside this capital. For this reason, banks will be watching for the outcome of the next Financial Policy Committee meeting later this month.
Clara Furse, a member of the Financial Policy Committee, said December’s discussion on the extra capital almost came to a vote, which would be unusual as the committee typically takes decisions by consensus.
She said she found herself in a “small minority” against raising the extra amount of capital – the so-called counter-cyclical buffer – because it could choke off credit growth.
Credit growth was “hardly ringing alarm bells”, she said.
Furse made her comments in response to questions from parliament’s Treasury Select Committee on Wednesday. Furse and another Financial Policy Committee member Richard Sharp were being questioned in relation to their reappointment to the Bank of England’s committee.
Sharp, a former Goldman Sachs banker, said he had wanted banks to have a leverage ratio – another measure of how much capital a bank holds – of 4 percent.
The ratio has been set at a lower level, but Sharp said he had been persuaded that the extra capital provision would compensate for this. Sharp said among the major issues under discussion was a need to ensure that raising the extra capital was not damaging.
Members of the Treasury committee raised the question of risks from Britain possibly leaving the European Union if people vote in favour of Brexit in a referendum in June.
BoE Governor Mark Carney said on Tuesday that possible Brexit was the single biggest domestic risk to Britain’s financial stability.
Furse said a vote on potentially coming out of the EU was clearly a risk. Sharp said it posed short-term risks such as market swings, but being in or out of the EU did not pose medium or long-term risks to UK stability.
During his first term on the Bank’s committee, Sharp said he’d been “startled” by the amount of time spent going through every single word in its Financial Stability Report and other announcements before publication.
He had also been disappointed by the “postal cheque” pace of decision-making involving cross-border cooperation. The FPC holds a quarterly meeting on March 23 and makes a public statement on March 29. -Reuters