BARCLAYS MAY REDUCE LENDING
The banks were told some time ago that they must have capital equivalent to 3% of the total amount loaned say Harris & Co accountants Northampton. It is an attempt by the regulators to circumvent complex bank accounting rules that can allow banks to hold less capital against certain types of loans that are considered less risky such as mortgages.
By dodging the risk-weighting system used by the banks, the new leverage ratio system penalises those banks that specialise in mortgages.
Although there is an internationally agreed formula for calculating the leverage ratio, under the so-called CRD IV directive dreamt up by the Bank of England, the regulator chose a different methodology.
The banks have already committed to this target by December 2018, in line with an internationally agreed timetable.
Two weeks ago, though, outgoing Bank of England Governor, Mervyn King ordered the banks to show where they stand relative to the measure at the moment.
As a result, Nationwide, Britain’s biggest mortgage lender may have to raise £1b or more with bond issues to meet the new rule.
Of the major banks, the new measure has hit Barclays hardest because it has more in convertible bonds. Consequently Andrew Jenkins, the CEO of Barclays, warned on Friday that Barclays might have to restrict its lending to UK businesses to meet the new rules.
Well done Mervyn King and thanks for the retirement present!