FSA discussing leverage ratio with other regulators

Britain's Financial Services Authority is discussing with international partners the use of a leverage ratio to complement the Basel II capital adequacy requirements to which banks currently adhere.

FSA Chairman Adair Turner also told Reuters he believed British banks were sufficiently capitalised to absorb losses. He said he expected requirements for certain areas of banking, like trading books, to increase.

Switzerland has already introduced a leverage ratio — which reflects the scale a bank's funds are leveraged, or geared, to increase returns — for its two biggest banks, and analysts believe this will become an international trend.

"It's certainly something we at the FSA are thinking about and debating, with our international colleagues," Turner told Reuters in an interview.

"There is a very strong belief that some degree of counter-cyclicality is required. But we need to put the flesh on the bones as quickly as possible," Turner said, referring to regulatory moves to get banks to build up capital during good years, which could then be used as a cushion during a downturn.

"Ideally that should be agreed internationally. That is going to be the biggest challenge for groups such as the Financial Stability Forum or the Basel Committee on Banking Supervision."

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