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Bank outlines plans to rein in risk
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The Bank of England has outlined plans for "top-up" charges to boost bank balance sheets, as it sought to add the "missing ingredient" to financial regulation.
The central bank said the impact of the financial crisis could have been less costly for the economy if there had been tools available to bolster the resilience of the system and rein in the lending bubble.
In a discussion paper on cutting system-wide risk in the banking system, the Bank has mooted the idea of enforcing a capital top-up charge for banks engaged in riskier activities.
The surcharge could be calculated according to size and risk, rather than a blanket requirement across all banks.
Its proposals comes as part of an international effort to ensure banks put more money aside in the good times to build up a capital buffer.
Economies worldwide have been looking at how they could have prevented the credit crunch and subsequent banking sector meltdown that sparked a global recession.
The Bank of England said in its paper that so-called macroprudential policy tools to cut system-wide risk were "an important missing ingredient from the current policy-making toolkit in the UK and internationally.
"Had they existed, the current crisis might plausibly have been less costly for the real economy," it added.
The Bank stressed that it was not making firm conclusions and urged economies globally to co-ordinate on new plans to control systemic risk in the banking sector.
"To be wholly effective, the macroprudential regime might require significant international co-ordination," said the Bank.
