By Marc Joanny
PARIS, 30 Sept (Reuters) - A new cap on bank leverage runs counter to the risk-based Basel II, a set of rules that will need policing to ensure better compliance in future, a former central banker said on Wednesday.
Jacques de Larosiere, architect of European Union plans to reform its financial supervision, welcomed G20 backing last Friday for full adoption of the Basel II rules by 2011.
Additions to strengthen the framework and apply lessons from the credit crunch will take effect by the end of 2012.
De Larosiere, a past governor of the Bank of France, said the key challenge over the coming year will be defining new capital and liquidity requirements levels and determining which firms pose a risk to the broader financial system -- and may face a capital "surcharge".
"Capital requirements must be linked to the type of risk taken. The bigger the risk, the more the capital," he told Reuters in an interview.
"I don't think that a leverage ratio is consistent with this view," the former managing director of the International Monetary Fund said.
De Larosiere is the latest heavyweight figure to weigh in against introducing a leverage ratio globally, a move some European regulators suspect as a U.S. inspired way to neutralise some of Basel II's impact.
France failed to head off G20 backing for a cap on debt that is widely used in the United States, a country that has yet to fully sign up to Basel II.
Sheila Bair, chairman of the Federal Deposit Insurance Corp, a U.S. banks regulator, has expressed concern that applying Basel II in full would leave U.S. banks undercapitalised and wants a globally-applied leverage ratio.
The Basel Committee on Banking Supervision, which drew up Basel II, is thrashing out a definition of a leverage ratio that all G20 countries can agree on but there is a dispute over which assets should come within its scope.
De Larosiere said Basel II will need better policing.
"We have to ensure that all financial players comply equally with the new rules," de Larosiere said.
An international treaty could include a system for checking compliance and sanctions for breaches or the IMF could use its powers to ensure compliance, de Larosiere said.
(Reporting by Marc Joanny, editing by Ron Askew)