Barclays warns on new capital rules

Barclays has warned that it could rein in lending to households and businesses due to a new demand by the Bank of England that could force it to hold billions more pounds of capital.

Antony Jenkins, chief executive of Barclays, issued the warning just hours before the bank was required to submit its plan to the BoE's Prudential Regulation Authority banking regulator to meet a new so-called leverage ratio.

The PRA announced last week that Barclays and Nationwide building society had leverage ratios below the 3% standard due to be introduced internationally by 2019. A 3% leverage ratio allows banks to have assets worth 33 times their capital, with a lower ratio resulting in higher leverage. The PRA told the banks to submit plans by the end of the week to show how they could raise extra capital or reduce their risks to meet this ratio, although it was not clear when it wanted them to hit the target.

Jenkins said that he expects the PRA to accelerate the introduction of the leverage ratio, which he is aiming to reach by 2015, during discussions in July.

"We have a range of contingencies and options embedded in our plans, and given our starting point, we expect the July discussions will centre on possible acceleration," Jenkins said. "We have options to accelerate with minor income effects but an aggressive acceleration requirement from the PRA would require additional actions and could restrict our ability to extend balance sheet availability to customers, including - potentially - lending to the UK and other economies, which is something of course we want to avoid," he added.

His remarks are likely to frustrate the BoE, which made clear that it would not accept any plans submitted by banks that would lead to a reduction in lending. It comes after the outgoing governor had complained about banks lobbying the government over regulatory changes.

Jenkins said that while leverage ratios were a sensible cross-check they were a "much cruder tool" to measure the risks being run by banks than ones traditionally used "and need to be interpreted with care to avoid unintended consequences such as credit restriction and asset quality dilution".

Andrew Bailey, the boss of the PRA, also said this week that there needed to be "ground rules" about the way banks lobbied for change. Shortly after Bob Diamond was ousted as Barclays boss a year ago in the wake of the Libor-rigging scandal, Bailey had claimed that Barclays had a "culture of gaming - and gaming us".

Nationwide also remains in discussion with the PRA about how to reach the higher leverage ratio required by the PRA. The building society has a 2.1% leverage ratio and has described it as "a less sophisticated measure which ignores the quality of assets or the business model".

Powered by article was written by Jill Treanor, for on Friday 28th June 2013 16.24 Europe/London © Guardian News and Media Limited 2010


image: © Toby Jagmohan

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