Margot Patrick at WSJ reports that the Bank of England is enforcing a new “leverage ratio” rule:
Top U.K. banks regulator Andrew Bailey told lawmakers that the requirement for banks to hold at least 3% equity against total assets “is a sensible minimum,” and that those who fall short must act quickly, but without cutting their lending to households and businesses.
The Bank of England’s Prudential Regulation Authority on June 20 said Barclays and mutual lender Nationwide Building Society don’t meet the standard and gave them 10 days to submit plans for achieving it.
I hope that their Australian counterpart APRA are following developments closely. Both UK and Australian banks are particularly vulnerable because of their over-priced housing markets. And while the big four Australian banks’ capital ratios appear comfortably above 10 percent, these rely on risk-weightings of 15% to 20% for residential mortgages.
Only when the tide goes out do you discover who’s been swimming naked. ~ Warren Buffett
Read more at BOE: Barclays, Nationwide Must Boost Capital – WSJ.com.
A quick calculation of leverage ratios (tier 1 capital/total credit exposure) for the big four banks was not as bad as I feared:
CBA 4.1%; WBC 4.5%; ANZ 4.2% and NAB 4.4%. The sooner that APRA introduces this as standard disclosure the better. I would suggest that all should be aiming at a minimum ratio of 5.0%, which is achievable without too much disruption to the broader economy.