Prepare for the worst, BoE's Paul Tucker warns UK bankers

Oct 18, 2012

Tucker, favourite to replace Mervyn King, also has plans to get tough on 'get rich quick' bonuses

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DEPUTY GOVERNOR of the Bank of England Paul Tucker says the "worst may still be ahead" for UK banks. According to The Daily Telegraph, Tucker, who is a leading candidate to take over from Sir Mervyn King, also warned that UK bank balance sheets were still not strong enough to withstand what he called "end-of-the-world risks".

"There is a tangible probability ­ not a high probability ­ that the worst may still be ahead," he told members of the British Bankers' Association.

According to Reuters, Tucker wants regulators to consider forcing banks to hold a fixed amount of capital to cover assets on their books. "Leaving banks completely free to choose risk-weights, using internal models, is not safe," he said.

"It effectively allows banks to determine their own regulatory capital requirements, which hardly fits with society's purpose in regulating banking in the first place."

That point of view undercuts of new global bank rules - known as Basel III - which accept banks' internal calculations for establishing capital buffers.

Tucker also wants to strengthen bank pay rules and to use the medium-term success of the institution to establish bonus levels. "Putting it bluntly, that would make it less easy to get rich quick, irrespective of the quality of business transacted or the compliance culture in their part of the firm."

Tucker, 54, remains the favourite to succeed King, according to odds from William Hill. The bookmaker places him at 5-6. The odds on John Vickers have narrowed to 7-2 from 7-1. Lord Turner, the previous second favourite, is at 9-2.

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