U.K. Bank Commission Will Require Extra Capital, Analyst Says
Britain’s Independent Commission on Banking will recommend a Swiss-style increase in banks’ capital holdings and may force Lloyds Banking Group Plc to sell more branches, according to Jonathan Pierce, a banking analyst at Credit Suisse Group AG.
Banks may have to have an equity tier 1 ratio of at least 10 percent and a total capital ratio of at least 15 percent, wrote the London-based analyst in a note to investors today.
“The commission, like Switzerland, will opt for substantially increased capital and liquidity requirements for systemically important firms, i.e. all of the listed U.K. banks, rather than major structural changes,” wrote Pierce.
Swiss regulators last year proposed that Credit Suisse AG and its domestic rival UBS AG, the country’s biggest banks, hold almost double the capital required under Basel III rules, the so-called Swiss finish. The British IBC, which is also examining competition in its review to increase financial stability, is scheduled to conclude its report in September.
Lloyds is required to sell about 600 branches in the U.K. to comply with European Union rules on state aid after the bank needed more than 20 billion pounds ($32 billion) in taxpayer- funded capital injections to shore up its capital.
“There is a risk that the ICB seeks to accelerate and expand the EC-imposed divestment program at Lloyds,” wrote Pierce. “The size of the U.K. banks relative to economy necessitates a less concentrated banking system for systemic reasons.”
In the 1960s there were 16 U.K. clearing banks representing 32 percent of gross domestic product, compared with five with assets representing 450 percent of GDP today, wrote Pierce.
John Vickers, chairman of the government-commissioned IBC, last month said he was unlikely to seek a full break up banks, though would examine the ring-fencing of investment banking from consumer banking and higher capital requirements. Swiss regulators also rejected proposals to break up Credit Suisse and UBS, or directly limit their size and activities, such as proprietary trading.
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