BOE Says Capital Rules ‘Virtually Unchanged’ After Latest Tweaks

  • Measures lead to a 1% increase in Tier 1 capital requirements
  • UK becomes latest jurisdiction to revise Basel capital package

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By Laura Noonan

September 12, 2024 at 1:33 PM GMT+7

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The Bank of England says it has made “important changes” to the latest bank capital rules that will mean the package will now leave key requirements “virtually unchanged,” becoming the latest jurisdiction to make sweeping revisions to a package agreed to globally almost seven years ago.

The BOE will delay the implementation of the new capital rules until 2026 according to a statement. That’s six months later than its previous deadline and a date which the central bank hopes would put it on track to adopt the package at roughly the same time as other international jurisdictions.

“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,” Sam Woods, the Bank of England’s deputy governor and head of its regulatory arm, said in the statement.

The BOE said that the measures would lead to a 1% increase in Tier 1 capital requirements for lenders once transitional arrangements end in 2030. Its most recent estimates predicted a 3% increase in requirements.

The move comes just days after US regulators announced they will make extensive changes to their bank-capital rules proposal, cutting the expected impact to the largest banks by half and exempting smaller lenders from large portions of the measure.

Read more: Fed to Cut Biggest Banks’ Capital Hike by Half in Overhaul

The BOE’s key changes included requirements for SME loans and infrastructure lending as well as the treatment of residential mortgages, Phil Evans, the PRA’s director of prudential policy, said in a separate speech on Thursday.

“The bottom line is that we have made substantial amendments to our proposals in response to consultation feedback and evidence,” Evans said. “In some cases, we have made changes where the evidence suggested too much conservatism in our original proposals. We have also made changes where the proposals would have been too difficult or costly to implement in practice.”

The global capital reform package was agreed in 2017 in the aftermath of the global financial crisis. Seven years later, the backdrop has changed and policymakers are increasingly speaking of the need to ensure regulation doesn’t hurt economic growth.

Read more: BOE’s Breeden Says Easing Bank Regulations Could Spur Growth

The changes in the final Basel 3 reforms mostly center on limiting banks’ ability to use internal models to determine how much capital they set aside. Policymakers hoped that the move would boost the credibility of capital ratios among investors, who had grown suspicious that some lenders were using models to artificially pad their capital positions.

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