TLDR:
- BOE made changes to bank capital rules, leaving key requirements “virtually unchanged”
- Implementation delayed until 2026, aligning with other international jurisdictions
- Measures will lead to a 1% increase in Tier 1 capital requirements by 2030
- Changes include requirements for SME loans, infrastructure lending, and residential mortgages
- US regulators also announced extensive changes to bank-capital rules proposal recently
The Bank of England (BOE) has announced significant revisions to its bank capital rules, resulting in key requirements remaining “virtually unchanged” from their current state.
The implementation of these new rules has been postponed until 2026, six months later than previously planned, in an effort to align with other international jurisdictions.
Sam Woods, the Bank of England’s deputy governor and head of its regulatory arm, stated, “We have made a number of important changes following consultation, and the resulting package will support growth and competitiveness while also ensuring that the UK aligns with international standards.”
The BOE’s latest estimates indicate that the measures will lead to a 1% increase in Tier 1 capital requirements for lenders once transitional arrangements end in 2030. This is a significant reduction from the earlier projection of a 3% increase in requirements.
The announcement comes shortly after US regulators revealed extensive changes to their own bank-capital rules proposal. The US modifications include halving the expected impact on the largest banks and exempting smaller lenders from large portions of the measure.
Phil Evans, the Prudential Regulation Authority’s director of prudential policy, outlined key changes in the BOE’s revisions. These include adjustments to requirements for SME loans, infrastructure lending, and the treatment of residential mortgages.
Evans explained, “The bottom line is that we have made substantial amendments to our proposals in response to consultation feedback and evidence.”
The global capital reform package, which forms the basis of these rules, was initially agreed upon in 2017 in the aftermath of the global financial crisis.
However, the economic landscape has shifted considerably in the past seven years, prompting policymakers to consider the potential impact of regulation on economic growth.
The Basel 3 reforms, at the core of these changes, primarily focus on limiting banks’ ability to use internal models for determining capital reserves.
This move was intended to boost investor confidence in capital ratios, as there were concerns that some lenders might be using models to artificially inflate their capital positions.
The BOE’s decision to revise and delay the implementation of these rules reflects a broader trend among global financial regulators. There is a growing recognition of the need to balance stringent financial safeguards with the promotion of economic growth and competitiveness.
The changes made by the BOE are expected to have a significant impact on the UK banking sector. By reducing the projected increase in capital requirements, the central bank aims to maintain the sector’s competitiveness while still adhering to international standards.
The delay in implementation to 2026 provides banks with additional time to prepare for the new rules and make necessary adjustments to their operations. This extended timeline may also allow for further refinements to the rules as economic conditions continue to evolve.
