Chairman comments on FPC recommendations regarding bank capital
27 March 2013
Commenting on the FPC’s recommendations regarding bank capital, the Chairman of the Parliamentary Commission on Banking Standards, Andrew Tyrie MP, said:
Excessive leverage made a major contribution to this crisis. The FPC has concluded that more must be done to bear down on it.
We need safer banks. We also need banks that return to normal lending.
The PRA should exercise judgement in implementing the higher capital requirements. These need to be raised with considerable care.
On risk-weighting
The FPC has concluded that risk weights are not being calculated in a sufficiently prudent manner.
Either they are too low, or they have been too easily gamed by banks.
A robust leverage ratio is needed as a backstop to provide adequate capitalisation.
The 3% leverage ratio currently supported by the Government is too low. In time, it should be raised.
The FPC is best placed to judge the risks and weaknesses on banks’ balance sheets. That is why the Commission concluded that the FPC, not the Government, should set the leverage ratio.