The U.K. was sounding a note of authority with assertions that banks should be compelled to hold a certain amount of capital and threats of an investigation into Starbucks’ tax affairs.
Reuters reported Wednesday that Bank of England (BoE) Deputy Governor Paul Tucker said in a speech to the British Bankers’ Association (BBA) that banks should be required to hold capital reserves in amounts set by regulators and not by the banks themselves, because allowing banks to calculate their own reserves is not safe.
Tucker, front-runner to be the next head of the BoE, was quoted saying, “Leaving banks completely free to choose risk-weights, using internal models, is not safe. It effectively allows banks to determine their own regulatory capital requirements, which hardly fits with society’s purpose in regulating banking in the first place.”
Adding to the dire tone on reserves, Andrew Bailey, head of prudential regulation at the Financial Services Authority (FSA), said that British banks may no longer be permitted to cut capital reserves if such cuts do not increase lending while the economy struggles or if they pose a threat to financial stability.