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April 13 - 19 2011

News

The Telegraph

μNews

PAGES 2-13

μWorld News PAGES 14-17

μComment PAGES 18-21

μ Letters

PAGE 20

μObituaries PAGES 22-23

μ Features

PAGES 24-26

μCulture

PAGES 27-29

μExpat Life PAGES 30-32

μBusiness

μClassified

μPuzzles

μSport

PAGES 33-37

PAGE 38

PAGE 39

PAGES 40-48

NEWS P6

Morley faces jail Former Labour minister pleads guilty over expenses

WORLD NEWS P14

Large aftershock hits Japan Residents and nuclear workers forced to flee to higher ground

CULTURE P28

FEATURES P24-25

A just heart The lawyer who quit his career to improve prisons in Africa

Hollywood’s mystic poet Tim Robey on Terrence Malick’s new film, ‘The Tree of Life’

LOTTO 06/11

LOTTO 09/11

11 7 13 14 38 41 6 8 17 21 39 47

Bonus Ball 45

Bonus Ball 22

There were no winners of Saturday’s £6.7m jackpot and no winners of Wednesday’s £2.3m prize

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1029

The Telegraph

By Rupert Neate and Philip Aldrick BRITAIN’S banks were told on Monday that they must massively increase their capital reserves to protect savers and taxpayers from another financial crisis.

As The Telegraph went to press, the Independent Commission on Banking (ICB) was expected to recommend that banks hold £10 of shareholder equity for every £100 lent out.

Currently, the banks must hold a minimum of 7pc equity. The ICB was expected to say that lenders who qualify as “too big to fail” should hold a further 2pc-3pc – taking the minimum core equity requirement to 10pc.

Banks’ investors are likely to demand the banks operate on a further 2pc “cushion”, which will raise the effective capital requirement to at least 12pc. They are operating on an average of 10pc currently.

Credit Suisse has estimated Britain’s biggest banks will need to raise £15bn over the next two years to meet the requirements, likely to be adopted by regulators as part of the Basel III banking rules. The money could be raised by limiting payments to shareholders and staff through lower dividends and bonuses.

Danny Alexander, the Chief Secretary to the Treasury, told the BBC’s Andrew Marr Show on Sunday: “We set up this Commission because we have a serious problem which has caused enormous damage to our economy. [Banks’] balance sheets are five times the size of the British economy. We have to act on that and we certainly intend to.”

The ICB also recommends banks be forced to “ringfence” their retail operations from their riskier investment banking divisions in order to shield savers from so-called “casino banking”.

This will cost banks money as they will not be able to move capital around as easily.

Britain’s biggest lenders have warned George Osborne, the Chancellor, that if he forces them to adopt such tough requirements they may relocate overseas.

However, a source close to the ICB told The Telegraph that the banks were “peddling myths” about the effect of the rules on the UK’s ability to compete internationally.

“We wouldn’t be recommending anything that would have a hugely negative effect on the UK banks’ competitiveness,” the source said. Mr Osborne is said to take the banks’ threats to leave the UK “with a pinch of salt”.

The ICB report also recommends moving ordinary

THE SHAPE OF UK BANKING

Current accounts >> Market share

13pc Barclays

30pc Lloyds

Mortgages

7pc Barclays

28pc Lloyds

Small business

18pc Barclays

19pc Lloyds

16pc RBS

12pc Santander 14pc HSBC

Nationwide

8pc Other 7pc

Nationwide HSBC

7pc RBS

5pc 13pc Santander

10pc

30pc Other

23pc RBS

7pc Santander 18pc HSBC

15pc Other

>> UK retail banking versus investment banking

UK retail banking income

Investment banking income

£12bn

£13.6bn

£7.9bn

£5.4bn

£5.7bn

£4.6bn

RBS

HSBC

BARCLAYS

Sources: TSC, 2010 annual reports savers up the creditor hierarchy to ensure financial market creditors can incur losses in the event a bank runs into trouble without enforcing the same “haircuts” on depositors’ money.

Sir John Vickers, chairman of the Commission, has suggested that Lloyds Banking Group should sell off more branches than the 600 mandated by Brussels to improve competition.

The Commission has expressed “cause for regret” over the Labour government’s decision to allow Lloyds to take over HBOS at the height of the crisis, but does not recommend that the takeover be unwound.

The final report will be published in the autumn. ÞOne of the world’s largest credit ratings agencies,

Moody’s, said it was reviewing the credit status of British banks and warned that it was preparing to reduce the rating awarded to many institutions.

These ratings are crucial for banks and building societies as they determine the price of borrowing for banks on international financial markets.

Banks with a lower credit rating will pay more – and the extra costs will be passed on to consumers who will face higher mortgage, loan and credit card rates.

Moody’s decided to intervene ahead of the publication on Monday of an interim review of Britain’s banks after ministers said financial institutions should not be “too big to fail”.

Moody’s said up to 18

institutions, including many smaller building societies, could see their debt ratings cut following the review.

The credit ratings agency is then expected to reduce the credit ratings of larger institutions.

Smaller banks are likely to be more vulnerable to downgrades. The larger banks would still be assumed to benefit from some level of tacit government support, “at least for now”, Moody’s said.

Borrowers were last week spared an increase in the Bank of England base rate, although rises are expected before the summer to help curb inflation. The European Central Bank increased rates for the first time in almost three years.

Portuguese bail-out: Page 33