Under Basel III, banks will be required to hold a minimum of 7 per cent core tier one capital.
Speaking at the Wincott Annual Memorial Lecture in London yesterday, Haldane said: “The average risk weight for a global bank is 40 per cent. This means that a 10 per cent capital ratio in risk-weighted terms translates into bank leverage of 25 times equity. So even once Basel III is in place, an unexpected loss in the value of a bank’s assets of 4 per cent will be sufficient to render it insolvent, much less than that to render it illiquid. For me, that argues for bolstering further banks’ capital defences over the medium term. Basel III is a good starting point, but may not be the right finishing line.”
Haldane also argued that behaviour in the financial system would improve if banks had different performance-based pay structures.
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