LONDON (Reuters) - Britain wants to give its risk watchdog powers to impose tougher limits on how much banks can extend their debt, a step which could put it at odds with globally agreed rules.
The country has been taking a hard line approach after having to bail out many of its banks, and wants to tighten controls over a financial sector that is many times the size of its economy.
While Britain broadly backs so-called Basel III global rules aimed at preventing a repeat of the 2007-09 financial crisis, it wants room for manoeuvre to impose tougher measures when it deems necessary.
The Bank of England’s Financial Policy Committee (FPC), set up to plug supervisory gaps highlighted by the crisis, can force banks to increase their capital buffers.
Financial Secretary to the Treasury Greg Clark told a panel of MPs on Wednesday he also wanted the committee to be able to temporarily impose stricter leverage curbs on banks than the limit laid down by Basel III, when financial stability was threatened.
The leverage ratio measures a bank’s total assets against its equity, and under the Basel III accord, it has been set at a 3 percent, meaning leverage should be no more than 33 times assets.
“The government’s view is we want to give the FPC time-varying leverage powers and that is our intention,” Clark told the Treasury Select Committee.
The MPs on the Treasury committee want to go further than the government and impose a permanent tougher limit, at least 4 percent, or leverage of no more than 25 times assets, but the government has rejected this call.
Clark said the European Union was finalising a law to put Basel III into effect and that Britain hoped it would include wriggle room for all member states to vary bank leverage from the global norm when needed.
“We are arguing for it very strongly in Europe,” Clark said.
A senior EU lawmaker said this week a deal on the law may be possible on Tuesday and Clark was unable to say what would happen if Britain’s request was rejected.
The FPC’s core role is to stop asset bubbles, often described as taking away the punch bowl.
Clark signalled the government would generally back such tough decisions when warranted and not try to undermine the committee with a running commentary on its actions.
Nevertheless, the committee “should not be entirely closeted” and its members should be open to hearing directly from banks and other parts of the industry, he added.
After having to shore up several lenders, including Royal Bank of Scotland and Lloyds, Britain has ditched its “light touch” pre-crisis approach to regulation and become one of the world’s leading hawks.
Reporting by Huw Jones; Editing by Pravin Char