Chancellor George Osborne plans to force banks to ring-fence their investment banking and retail arms and hold higher capital buffers.
However, the Commission, led by chairman Andrew Tyrie MP (pictured), said the leverage ratio imposed on the banks is “too low”.
Current international standards propose that banks have a leverage ratio of 3%, but the Commission said the Bank of England must be given the power to set a higher cap in line with previous recommendations lenders should have their assets limited to 25 times their core capital.
Osborne has insisted the 3% level will be sufficient but the Commission said it was “wholly unconvinced” by the Chancellor’s argument, the Telegraph reports.
“The FPC (Financial Policy Committee of the Bank of England) should immediately be given the duty of setting the leverage ratio. Almost certainly, a leverage ratio of 3% is too low,” said Tyrie.
Tyrie has called for powers to “electrify the ring-fence”, meaning the regulator could forcibly split up banks which fail to implement adequate reforms.
The government has accepted this, but the bill does not contain the legal powers to separate retail and investment banking across the entire industry, if the need should arise.
Tyrie said: “The government rejected a number of important recommendations. We have concluded that the government’s arguments are insubstantial. There remains much more work to be done to improve the bill.”
