John Vickers: Banks should carry twice existing level of core tier one equity capital.

The head of the UK body set up to introduce reforms in the wake of the financial crisis has recommended that all banks should be forced to carry core tier one equity capital of 20% compared with 10% under existing guidelines.

If John Vickers’s recommendation is adopted in future then it would mean Irish banks would have to raise further capital to meet the requirements.

Mr Vickers made his comments to the Financial Times ahead of a speech to the Regulatory Policy Institute yesterday.

He also said that the 3% leverage ratio that looks like being introduced as part of the Basel III framework is inadequate because it would mean that banks would be allowed a leverage multiple of 33. He wanted the leverage ratio increased to 6%.

Mr Vickers headed the UK Independent Commission on Banking which proposed a number of financial sector reforms that are in the process of being transposed into law.

AIB has a core tier one equity ratio of 15.1%; Bank of Ireland 14.4% and PTSB 18%. But the covered banks will have to write off potentially billions of mortgage and other impaired loans over the next few years, which will dent their capital ratios.

The EU wide bank stress tests will be carried out next March to determine if the banks will need more capital in the near term.

However, a report by Glas Securities in Dublin claims Irish banks have enough capital to deal with the mortgage crisis.

“If we look at the non-performing residential mortgage component across the three banks, we believe that the banks’ level of capitalisation is sufficient to withstand related losses,” Glas said.

Glas said banks can navigate their way though the crisis and amortise related losses “over an extended period of time,” assuming repossessions and interest rates stay low.

At the end of June, €18.6bn of private residential mortgages were in arrears of more than 90 days, with another €8.7bn of buy-to-let loans also behind in payments.