LONDON, Sept 12 (Askume) – The Bank of England aims to introduce revised new rules on how much capital British banks must set aside to cope with future crises in a bid to support economic growth and boost their global assets.
Central bank regulators said on Thursday they would make “substantial changes” to some previously proposed Basel bank capital reforms following consultation and evidence that highlighted “excessive conservatism” and implementation costs or challenges.
The above changes will be effective from January 1, 2026 (not July 1, 2025).
Financial regulators created Basel III rules after the global banking crisis of 2007-2009 forced taxpayers to rescue many undercapitalized banks.
Most elements of the Basel package have already been implemented among major lenders, while some remaining elements still need to be implemented into national rulebooks.
“In terms of the capital effect, we think the demand impact across all UK businesses will be very small on average,” Phil Evans, policy director at Prudential, said in a speech.
The Bank of England plans to reduce proposed capital requirements for loans to small and medium-sized enterprises and infrastructure projects.
It also plans to simplify the way banks lend money on mortgages, mainly by simplifying the valuation of residential properties.
Senior industry sources are concerned that the previously proposed rules would require banks to set aside capital for these activities, which could hamper the provision of affordable loans to borrowers, investors and homeowners.
The Bank of England estimates that the overall impact of the new proposed changes on Tier 1 capital requirements for major banks will be less than 1%, with the changes phased in over four years.
“This is a small number compared with our consultation proposals and far below the roughly 300% increase we needed in the decade from the global financial crisis to COVID-19,” Evans said.
By 1056 GMT, the FTSE 350 banking index (.FTNM301010) was up 1.5%, the blue-chip index (.FTSE) was up 0.8%, and HSBC(HSBA.L) , Barclays (BARC.L) and National Westminster Bank (NWG.L) traded 2.2%-0.2% higher .
Reeves Convention Industries
Finance minister Rachel Reeves welcomed the reforms, saying they would provide the banking sector with certainty “to finance investment and growth in the UK”.
Reeves, alongside Bank of England governor Andrew Bailey, met banking sector chief executives to discuss the changes.
“Today marks the end of a long journey since the 2008 financial crisis,” Reeves said in a statement.
“UK banks play a vital role in growing businesses, building infrastructure and helping ordinary people access finance.”
A spokesperson for NatWest, Britain’s largest small and medium-sized business lender, said they would continue to work with the government “to achieve greater certainty”.
Anindya Ghosh Chowdhury, director of banking risk and regulatory advisory at Forvis Mazars, said the revised package would bring UK capital requirements for small and medium-sized enterprise (SME) lending in line with European counterparts, but UK banks would still face significant changes when it comes to residential mortgages.
News of the Bank of England’s change in the implementation of Basel rules comes amid intense lobbying on Wall Street by the Fed’s supervisory chief.The plan, released two days later, outlined plans to significantly reduce capital requirements for large U.S. banks.
Michael Barr, the Fed’s vice chairman for supervision, said the easing plan would increase capital requirements for banks with more than $100 billion in assets by 9%, compared with the previous 19%.
But industry analysts say raising such a large amount of additional capital is unnecessary and that the reforms will mean banks will have less capital to lend or support the healthy functioning of global markets.
The EU has postponed key rules relating to bank trading accounts until January 2026, but is pushing for most of the remaining rules to be implemented in January 2025.
Steven Hall, a partner in KPMG’s UK risk and regulatory advisory practice, said it was “very likely” that the requirements would need to be further updated to reflect other risks, such as cyber and climate risk.
“Since these reforms have been nearly 15 years in the making, the industry is concerned about how long it will take to get to this point,” he said.
