Firms oppose capital buffers

Oct 1 2009 By The Journal

LARGER banks are resisting efforts to impose tougher capital requirements on institutions deemed "too big to fail".

The Financial Services Authority’s (FSA) feedback from Lord Turner’s review of the crisis said "a number of larger firms" opposed the idea of capital buffers for important banks.

Larger banks are open to more intensive supervision by the regulator but if they are forced to hold more capital their profits will suffer.

The FSA’s summary of responses said: "Their view contrasted with other respondents, who were in favour of tougher requirements, which were felt to be needed to guard against failure."

Other respondents favoured breaking up important banks - which could boost competition - and added the presence of institutions deemed ’too big to fail’ created "an unacceptable degree of moral hazard" due to implicit guarantees from the regulator.

The FSA is to issue a discussion paper in the next month tackling the issue of systemically important banks and policy tools such as the design of ’living wills’ to wind down failed banks in an orderly manner.