LONDON: The Bank of England aims to roll out revised new rules on how much capital UK banks must set aside to cope with future crises, as it juggles efforts to shock-proof lenders while supporting growth and without hurting their global commercial interests.
In a speech published on Thursday, the regulatory arm of the central bank said it would make "substantial amendments" to some earlier proposed Basel bank capital reforms following consultation and evidence, which had highlighted "too much conservatism" and excessive costs or challenges to implementation.
The changes outlined on Thursday will come into force on Jan. 1, 2026, instead of on July 1, 2025.
Financial regulators crafted the Basel III rules after the 2007-2009 global banking crisis forced taxpayers to bail out several undercapitalised banks.
The bulk of the Basel package is already in force across major lenders, with some remaining elements still to be implemented into national rulebooks.
"In terms of the capital impact, we think there will only be a very small impact on requirements, on average, across UK firms," Phil Evans, director of prudential policy, said in the speech.
The BoE is planning to lower its proposed capital requirements for lending to small and medium-sized businesses and for infrastructure projects.
It also plans to streamline the approach banks can take to mortgage lending, chiefly by simplifying how they value residential property.
Rules proposed earlier would have increased the amount of capital banks needed to set aside against these activities, potentially crimping the supply of affordable credit to borrowers, investors and homeowners, senior industry sources had feared.
The BoE estimates the impact of the new proposed changes will be less than 1 per cent in aggregate on Tier 1 capital requirements across major banks, phased in over four years.
"This is smaller than for our consultation proposals, and is clearly very small compared with the roughly 300 per cent increase we needed over the decade from the global financial crisis to COVID. It is a smaller impact than in other major jurisdictions," Evans added.
The FTSE 350 banking index was up 1.7 per cent on the day following the news, compared with a 1.1 per cent gain in the blue chip index, with shares in HSBC, Barclays and Standard Chartered trading 1.5 per cent-2.2 per cent higher.
Reeves meeting industry
Finance minister Rachel Reeves welcomed the reforms, saying they would deliver certainty for the banking sector to "finance investment and growth in the UK."
Together with Bank of England Governor Andrew Bailey, Reeves is due to meet chief executives from across the banking industry later on Thursday to discuss the changes.
"Today marks the end of a long road after the 2008 financial crisis," Reeves said in a statement.
"Britain's banks have a vital role to play in helping businesses to grow, getting infrastructure built and supporting ordinary people's finances."
News of the BoE's revised approach to implementing Basel rules comes two days after the United States Federal Reserve's regulatory chief outlined a plan to also significantly reduce capital demands on big U.S. banks following intense Wall Street lobbying against the Basel rules.
Fed Vice Chair for Supervision Michael Barr said a watered-down plan would raise capital requirements at banks with more than US$100 billion in assets by 9 per cent compared with 19 per cent originally.
But critics say hoarding such a vast volume of extra capital is unnecessary and the reforms will mean banks have less capital to lend or to support healthy functioning of global markets.
The United States is unlikely to finalise its own version of the rules until after its November presidential election.
The European Union has already delayed a core part of the regulation relating to banks' trading books until January 2026, but is pressing ahead with introducing the bulk of the remaining rules in January 2025.
Steven Hall, a partner in KPMG UK's Risk and Regulatory Advisory practice, said there was a "very real possibility" the requirements would need further updates to reflect other risks such as cyber and climate risk.
"Given these reforms are almost 15 years in the making, there is a general concern across the industry about the time it has taken to reach this point," he said.