(Bloomberg) -- The Bank of England said it made significant changes to new bank capital rules that will mean the measures leave key requirements “virtually unchanged” for lenders across the UK, becoming the latest jurisdiction to make sweeping revisions to the package.
The BOE said the measures would ultimately lead to a less than 1% increase in how much Tier 1 capital lenders must hold as a cushion against financial shocks, according to a statement. For banks, that’s an improvement from the BOE’s most recent estimates, which had predicted a 3% increase in the requirement.
The central bank will also delay the implementation of the new capital rules until 2026. That’s six months later than its previous deadline and a date which the BOE hopes would put it on track to adopt the package at roughly the same time as other international jurisdictions.
“This package does not increase the overall amount of capital by very much at all,” Sam Woods, the Bank of England’s deputy governor and head of its regulatory arm, said in an interview with Bloomberg Television. “But what it does do is move the capital around within the banking system so that it’s in a better place.”
The moves, which are meant to address the key concerns of UK lenders, come just days after US regulators announced extensive changes to their bank-capital rules proposal, cutting the expected impact to the largest banks by half to 9%. That’s the same level as the increase in capital demands for the EU’s banks.
There’s a question about whether the rules the US ultimately adopts will comply with the Basel standards, Woods said, though he noted his counterparts at the Fed have given him assurances that they plan to do so.
“This is an international agreement, it only works if everyone plays,” Woods said. “If, of course, that turned out not to be the case then look, of course we’d have some thinking to do. But that wouldn’t just be us. It would be us, the EU, we’d all have to think, ‘What does that imply?’”
Lenders across the UK will spend the coming days digesting the massive proposal after the BOE published 1,750 pages of text on Thursday.
Banks around the world have been engaged in fierce lobbying campaigns to try to get regulators to align on both the content and the timing of their proposals, with one group even running ads against the plans in the US during telecasts of National Football League games.
“This very public discussion has been a feature right across the UK, US and the EU,” Phil Evans, a director with the BOE’s Prudential Regulation Authority, said in a speech on Thursday morning, noting the issue generated 126 consultation responses that identified 600 unique issues. “Thankfully, I can report that I haven’t yet observed any adverts placed by UK finance on the Metropolitan line on my way into work each morning.”
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.
“These reforms will strengthen the resilience of our banking system and deliver the certainty banks need to finance investment and growth in the UK,” UK Chancellor Rachel Reeves said on Thursday morning, ahead of a planned meeting with the country’s top lenders.
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.
The BOE’s key changes included adjusting the requirements for loans to small- and medium-sized businesses and infrastructure lending as well as the treatment of residential mortgages, Evans said.
“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.”
--With assistance from Francine Lacqua.
(Updates with comments from Sam Woods beginning in fourth paragraph.)
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