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Govt rejects higher bank capital to protect mortgage lending

Greg Clark BBA Conference 2012 480
Treasury minister Greg Clark concerned over impact on building societies

The Government has rejected calls from Sir John Vickers and the Parliamentary Commission on Banking Standards to introduce higher bank capital requirements.

Vickers’ Independent Commission on Banking recommended banks set aside a minimum of 4.06 per cent of capital but the Government says it will only go as far as 3 per cent in line with Basel III.

In its interim report, published in December, the PCBS said it was “essential” that the ratio was “substantially” higher than three per cent as it was a “significant contributor” to the crisis.

But the banking reform bill, published today, states: “In the UK, this could particularly apply to institutions that performed relatively well in the recent crisis. The Government does not, therefore, see the case for permanently raising the leverage ratio beyond the Basel III standard.”

Banks, and particularly building societies such as Nationwide, had heavily lobbied against an increase claiming it would damage mortgage lending and hit low-risk activity.

Speaking in the House of Commons yesterday, Treasury financial secretary Greg Clark said he was particularly concerned about the impact on building societies of a higher capital requirement.

Shadow Treasury financial secretary Chris Leslie said it was the worst omission from the bill and Labour wants to see it included.

He said: “Why is he ducking the main conclusion of the Vickers report? Specifically why is he refusing to adopt the commission recommendation on the leverage ratio and reign in the exposure of banks whose excessive risk-taking caused the mess in the first place. Shouldn’t there be a clause in the bill so regulators can restrain such hazardous behaviour?”

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