BOE’s Jenkins Says Return on Equity Is Wrong Target for Banks

Robert Jenkins, a member of the Bank of England’s interim Financial Policy Committee, said lenders shouldn’t use return on equity as a profitability target as it undermines financial stability.

“ROE is the wrong target,” he said at a conference in Paris today. “Over the last 10 to 15 years it has helped to make many bankers rich and loyal shareholders poor. Moreover it prompts banks to fight to keep loss absorbing capital low.”

“This makes their enterprises vulnerable and our financial system fragile,” Jenkins said. “As the key driver of bank behavior it has to go. If it does not, you can expect more collateral damage in the future.”

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Fergal O’Brien at fobrien@bloomberg.net

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