Tyrie comments on Bank of England consultation on leverage ratio

Andrew Tyrie MP, Chairman of the Treasury Committee and former Chairman of the Parliamentary Commission on Banking Standards, said:

“The Parliamentary Commission on Banking Standards concluded that the Financial Policy Committee—not politicians—should set the leverage ratio. The banks lobbied heavily against this recommendation and the Treasury did not initially show much interest in it.

“Commissioners needed to press vigorously to secure it. Today’s proposals are therefore a welcome result.

“The old risk-weighted system failed catastrophically. Among other things its complexity made it vulnerable to gaming by the banks.

“As the last crisis demonstrated, taxpayers can be put at risk if bank failures lead to contagion. Huge bailout bills can await the taxpayer if banks are over-leveraged and undercapitalised.

“For these reasons, the leverage ratio is an essential addition to the Bank’s toolkit for improving the stability of the financial system. A good deal of judgement is needed in its implementation and it is crucial that the Bank exercises it.

“The Treasury Committee will be asking questions of the Bank of England about the leverage ratio when they come to see the newly formed Committee on Tuesday.”

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