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Concerns rise as Turner says Basel isn’t tough enough

Lenders are concerned about potential further increases in capital requirements after FSA chairman Adair Turner said Basel III core tier one capital ratios are not high enough.

Speaking at the Cass Business School last week, Turner said Basel III, which requires banks to hold 4.5 per cent of core tier one capital, as well as a 2.5 per cent counter-cyclical capital buffer by 2019, does not go far enough.

He said core tier one capital ratios of between 15 and 20 per cent would be more desirable. He added that both Basel III and measures designed to end “too big to fail” scenarios are not enough to ensure financial stability.

The British Bankers Association has warned that further capital requirements could affect recovery in the sector.

A spokeswoman says: “As it is, our banks have actually done quite a lot in rebuilding their balance sheets. The whole underpinning ethos is that we are committed to restoring financial stability and promoting economic recovery, however, there does need to be a balance between stability on one hand and getting the economy going on the other. We would like to see the financial authorities take that into account and ensure any rule change would not have an adverse impact on either side of that equation.”

The Council of Mortgage Lenders warns the requirements should not be taken too far. A spokesman says: “It is about getting the balance right and making sure we have the right approach to capital requirements. Regulators must not go too far and impose excessive requirements that will bear down on the capacity of institutions to lend.”

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