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Cap-ad rules could lead to money hoarding

Standard Chartered has warned that the FSA’s proposed counter- cyclical changes to capital adequacy could lead to a “wretched” system of money hoarding.

Speaking at the Turner review conference in London last week, Standard Chartered chief executive Peter Sands said: “Banks are holding the kind of levels of capital that they should be holding in the best times, that is, they are not using the buffers in a time of stress, which is not very helpful to the real economy.

“There is a real danger that counter-cyclical capital systems could lead to a wretched capital system, where you build up more capital in good times.”

Bank of England deputy governor Paul Tucker argued that the buffers proposed by the FSA are necessary and any reduction should not be considered.

FSA chairman Lord Turner said counter-cyclical capital requirements were necessary but questioned where the levels should be set. “We will need to determine between us the measures required to take away the punchbowl before the party gets out of hand,” he said.

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