FSA sees no need for fresh rules on bank capital

By Lisa Jucca

LONDON (Reuters) - The Financial Services Authority does not expect banks to be required to put aside more capital against risks as a result of the current subprime-triggered market crisis, a senior FSA official told Reuters on Wednesday.

Defaults in low-quality loans on homes in the United States -- known as subprime mortgages -- have triggered a global credit crisis that sent governments to the rescue of banks such as IKB (IKBG.DE: Quote, Profile, Research, Stock Buzz) in Germany and Northern Rock NRK.L in the UK.

Britain's financial watchdog is under pressure to overhaul its rules for UK banks following the Northern Rock crisis and discussions are taking place among banks and regulators on the best approach.

"The sector is certainly under some strain. We are discussing with the banks what positions they are in and the types of steps they are taking in order to preserve their positions," said Thomas Huertas, Acting Managing Director of Wholesale and Institutional Markets at the FSA.

"In terms of capital requirements, we do not see significant changes that would lead to a significant increase in required capital (for banks)," Huertas told a Reuters Finance Summit.

Huertas said the market turmoil has prompted regulators around the globe to discuss issues such as bank liquidity and valuation of complex financial instruments as well as the new Basel II framework that governs bank capital.

Basel II rules, named after a Swiss-based global regulatory group, were drafted at the end of 2004 and are gradually being adopted around the world. The rules reward safe banking practices and penalize risky behavior with capital charges.

However intense the discussions, Huertas said the crisis was not putting into question the role of Basel II as an improvement in the way banks assess how much capital they need to protect themselves against risk.  Continued...