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Market Analysis

The Bank of England continues to advance its softer bank capital regulations
Amos Simanungkalit · 34.9K Views

13

The Bank of England is advancing with revised rules on how much capital UK banks must hold to weather future financial crises, aiming to strengthen lenders without undermining their global business interests.

In a speech released on Thursday, the central bank's regulatory division announced "significant adjustments" to the initially proposed Basel capital reforms. These changes respond to consultation feedback and evidence, which indicated that the original proposals were overly conservative and presented high costs or implementation difficulties.

Phil Evans, Director of Prudential Policy, noted, "In terms of capital impact, we expect only a very minimal effect on requirements for UK firms on average."

Evans emphasized that the modifications were based on UK-specific data, stressing that the changes should not be interpreted as commentary on how other jurisdictions should implement the Basel reforms.

The Prudential Regulation Authority plans to ease proposed capital requirements for lending to small and medium-sized enterprises (SMEs) for infrastructure projects. It will also simplify banks' approaches to mortgage lending, particularly in valuing residential properties.

Taking these new proposals into account, Evans estimated that the changes would reduce capital requirements by less than 1% overall, phased in over four years. He highlighted that this reduction is smaller than initially proposed and insignificant compared to the approximately 300% increase seen after the global financial crisis and COVID-19. The impact is also less than that in other major jurisdictions.

Finance Minister Rachel Reeves welcomed the reforms, stating they provide the banking sector with certainty to support investment and growth in the UK. Reeves, alongside Bank of England Governor Andrew Bailey, is set to meet banking CEOs on Thursday to discuss the changes, which are set to take effect on January 1, 2026.

"Today marks the conclusion of a long journey since the 2008 financial crisis," Reeves said. "Britain's banks have a crucial role in fostering business growth, building infrastructure, and supporting people's financial needs."

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.

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