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BOE adjusts capital rules for global banks with UK retail arms
[LONDON] UK banks which have a global footprint and big domestic retail operation might have to set aside a slightly bigger capital buffer against lending risks from 2019, the Bank of England said on Thursday.
The BOE, which is seeking to prevent a repeat of the 2007-09 financial crisis when problems in the banking system hammered the global economy, has published a final set of rules on how much extra capital banks wrap around their retail arms.
All deposit-taking banks with assets of 175 billion pounds (S$353 billion) or more will be required to "ring-fence"themselves with an additional "systemic risk" capital buffer.
But after consultations, the Bank tweaked the final rules published on Thursday to reflect how three British lenders - HSBC, RBS and Barclays - have separate global capital requirements to comply with as well.
The amendment will mainly affect RBS because under its current structure it has a large UK retail arm while its global capital requirements are relatively low.
The change ensures that global banks hold enough capital to absorb any losses at their international and ring-fenced retail arms but without costly duplication.
The BOE has set a target for the UK banking system as a whole to hold a capital buffer equivalent to 13.5 per cent of risk-weighted assets, a level that has already been largely reached.
The BOE's Financial Policy Committee said the impact of the amendment for global banks would be "very small at present".
The FPC made no other changes to proposals it put out to public consultation, brushing aside calls from John Vickers who chaired the Independent Commission on Banking's inquiry into the shortcomings of the banking system following the financial crisis.
Vickers has accused the BOE of weakening the commission's recommendations for strengthening capital requirements, and wants a far higher systemic risk buffer than the maximum 3 per cent of risk-weighted assets proposed under the BOE's final rules. "It's disappointing that the BOE has stuck to its soft policy on bank capital. Parliament gave the BOE scope to strengthen capital requirements a good deal further but it has fallen short," Vickers said in a statement.
BOE officials say that overall their capital rules are largely in line with what the commission wanted. Capital already set aside by British banks is 2.5 times the size of losses racked up by RBS or HBOS, the two banks rescued by taxpayers in the financial crisis, the officials say.