On Breakingviews: UK banks’ Big Bang thankfully looks like a big flop, writes LiamWardProud
it planned largely to stick to international bank-capital rules, dubbed Basel 3.1. The British central bank’s approach appears stricter than the European Commission’s: Brussels has both diluted and delayed its implementation of the standards, for example by applying looser rules to some residential mortgages.
Beefy capital rules help to reduce lenders’ funding costs, while ad hoc political fiddling could do the opposite. Strong and stable regulation can be a competitive advantage.The Bank of England’s Prudential Regulation Authority , which supervises British lenders, on Nov. 30 proposed implementing new capital rules known as Basel 3.1 by Jan. 1, 2025.
The changes would include stopping banks from using their own methods to calculate the riskiness of their operations and of some loans, which in turn informs their equity capital requirements. Where banks do use their own risk methods, their resulting risk weighted assets – bank assets weighted according to their risk – could not be less than 72.5% of the RWAs that would be calculated under the standardised regulatory approach.Separately, the government’s City minister Andrew Griffith said on Nov. 29 that he wanted to relax the so-called ringfencing regime that forces large British lenders to separate their retail and investment banking arms.
According to the Financial Times, the ringfencing regime would still apply to the biggest UK banks but there could be exemptions for lenders with limited trading operations including Santander UK, Virgin Money and TSB Bank.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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