Imitation is flattery

28 April 2009 By Hugo Dixon Follow @hugodixon

Having decided not to forcibly break up the big boys, the government is instead likely to impose tougher capital ratios on Barclays, Lloyds, RBS and HSBC. The US is doing the same. Such a regime is a good idea. It might even encourage giants to break themselves up.

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The UK is expected to impose tougher capital ratios on banks that are considered too big to fail, according to the FT. The plan is expected to be contained in the government's white paper on how the banking system should be regulated, due out next month. The FT said HSBC, Royal Bank of Scotland, Lloyds Banking Group and Barclays could be forced to hold more capital than the sector average.

This would mark a significant modification of the proposals articulated last month by Lord Turner, chairman of the Financial Services Authority. His Turner Review, most of which is being adopted by the government, did not contain such a plan.

However, since then, momentum in favour of the idea has been gathering within the FSA, breakingviews has learnt. Turner himself wishes he had given more attention to it in his review.

One reason for the UK's newfound enthusiasm for the proposal is that last month, Tim Geithner, the US Treasury Secretary, proposed such a scheme for the US.

Turner told the FT that higher capital ratios were certainly a possible way forward.

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