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Vickers clashes with Bank of England over weaker capital plans

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Sir John Vickers, who led the Independent Commission on Banking, is warning the Bank of England’s proposals on capital requirements are too weak.

The central bank’s latest suggestion is for the largest of the biggest six banks to hold 2.5 per cent in addition to value of loans, while the smaller lends can hold just 1 per cent.

But speaking to the BBC Vickers says: “The Bank of England proposal is less strong than what the ICB recommended.”

In its final report in 2011 the commission recommended the six largest banks should each have a capital buffer of 3 per cent.

Vickers adds: “A good way to think about it is as an insurance policy.

“You do have to pay a premium to insure your house and you hope nothing bad will happen. But if it does, you are much better off in paying that premium, and for full coverage.

“If banks run out of capital, all sorts of havoc could ensue. We want to be in a position where there’s enough of a buffer to take any losses that might occur.”

However, Bank of England governor Mark Carney said the system had sufficient capital.

Vickers favours equity capital as “the best shock absorber”.

He says: “The main argument made against stronger buffers is rather a reason for them. Equity capital, it is said, is costly for banks because investors expect high returns. But high returns make sense only if they compensate for risk. It is in the public interest, however, to contain risks from banks – especially those providing core services such as current accounts – which is best done by more equity, not less.”

Vickers’ intervention comes as stock markets, and banking stocks, continue their new year slump.

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