Loosening of bank rules ‘highly risky’

THE chief of the UK’s banking regulator has cautioned against significant dangers should the UK relax its regulations concerning lenders’ capital framework, as the government pursues economic expansion.

- SAMUEL NORMAN

Sam Woods, who leads the Prudential Regulation Authority (PRA), stated that permitting banks to cease setting aside capital for top-tier sovereign bonds would “be equivalent to ripping off our jacket, warm hat and gloves and throwing them all over the nearest cliff”.

A bank's leverage ratio gauges a firm's stability by dividing its core capital by unweighted assets including loans and bonds.

If these bonds - typically regarded as lower-risk - were excluded from the calculation, it would enable banks to maintain fewer funds to cover their assets.