Much stronger capital buffers are fundamental to banking reform. But seven years on from the Global Crisis, the question of how much stronger has not been fully decided. This column reviews the Bank of England’s recently published framework for the systemic risk buffer. It is suggested that the Bank should go further than it proposes, and require stronger capital buffers for systemically-important retail banks.
Sir John Vickers, 15 February 2016
David Miles, 17 January 2013
There is a view that banks are using more equity capital – and relatively less debt – to finance the assets they hold, creating substantial costs so great as to make more capital unfeasible. This column argues that these costs are exaggerated, but that the benefits of having banks that are far more robust are likely to be large. The argument that equity capital is costly is more an admittance that banks cannot convince people to provide finance in the knowledge that their returns will inevitably share in the downside and the upside. Worryingly, it is as if banks cannot play by the same rules as other enterprises in a capitalist economy. After all, capitalists are supposed to use capital.