Text Regulators plan to introduce tough standards on capital and liquidity later this year to bullet-proof the industry,

and are urging it to start preparing by setting aside more profits as a buffer against bad debts. Under pressure from the Bank of England and the inancial !er"ices #uthority, banks last year cut di"idends and reduced the amount paid in bonuses as a proportion of re"enue. $o%e"er, the Bank of England yesterday called for more to be done to &sustain lending to the real economy&. &This %ould require banks to double their efforts to contain discretionary distributions to shareholders and staff,& the Bank said in its half-yearly Financial Stability Report. &The benefits of more concerted action are potentially considerable.& or e"ery '()bn sa"ed, it said, &around '*)bn of ne% U+ lending could be sustained&. The Bank argued that lenders could generate '()bn simply by &constraining compensation ratios to pre-crisis le"els %hile limiting di"idend payouts to ,))- le"els&. !alaries and bonuses %ere cut as a proportion of re"enue from .)pc in ,))/ to ,0pc in ,))-, but the lo%er ratio %as still abo"e the ,.pc a"erage bet%een ,))* and ,))1. #ccording to the 2entre for Economics and Business Research, 2ity %orkers took home '0bn in bonuses in ,))- and are on course to collect '0./bn this year. !alaries ha"e doubled for some roles, at Barclays and Royal Bank of !cotland in particular, %hile public sector %orkers contend %ith a t%o-year pay free3e. The authorities %ant banks to sho% e"en more restraint on bonuses as their part of a pact to see the introduction of ne% regulations delayed. Rules on capital and liquidity are due to be un"eiled in the autumn, %ith full implementation already expected to be staggered o"er fi"e years. 4n comments that %ill reassure lenders, %ho %ant the process delayed further, the Bank yesterday said5 &#n extended transition %ould make it easier for banks to build resilience through profit retention.& 6o timescale %as gi"en in the report. The issue %as taken up by !tephen 7reen, chairman of $!B2 and the British Bankers8 #ssociation, in a letter to 9a"id 2ameron yesterday. :r 7reen urged the ;rime :inister to press for &properly calibrated changes %hich take account of the need for measures to be phased in o"er a suitable period of time& at this %eekend8s 7,) meeting in Toronto. The Bank is also calling for pay restraint because lenders face a massi"e and expensi"e refinancing task ahead that could <eopardise lending to businesses and housholds. Banks must replace '/))bn of funding by the end of ,)(,, at a rate of ',*bn a month = more than double the '(,bn monthly rate so far this year.

!ome ',/*bn of the funding is emergency support pro"ided during the crisis, %hich the industry %ants extended but the Bank is adamant %ill not be. 4llustrating the frustration, :r 7reen described funding markets as &sclerotic& in his letter to :r 2ameron. $o%e"er, the Bank has called on the industry to s%allo% the costs and pay up, stressing &the importance of prompt and determined action to term out their funding&. The cost of raising the ne% funds %ould eat into profits and potentially restrain lending, the Bank %arned, unless '()bn is sa"ed on bonus and di"idend payments. &This %ould help offset any reduction in lending that could other%ise be necessary if banks are to meet the funding challenges,& it said. The Bank also applauded U+ lenders for the efforts already made, saying they are &far more robust than six months ago&.