Tuesday 17 October 2017

UK regulator eases bank rules to boost lending and stimulate the economy

Stephen Mangan

BRITAIN'S financial regulator said yesterday it has relaxed capital and liquidity rules on banks in an effort to stimulate lending and boost the recession-hit economy, lifting bank shares.

The Financial Services Authority (FSA) said the policy shift was set out in the Bank of England's Financial Policy Committee (FPC) in September, and banks were aware of the changes.

But industry sources and analysts said there were mixed messages coming from regulators on capital rules, including several recent suggestions that more capital was needed.

FPC member Robert Jenkins, one of the committee's hardliners, said yesterday that banks may need more capital because a rule to curb balance sheets is too generous and urged bank shareholders to support bolstering balance sheets.

The FPC said in June that banks could tap their £500bn cash pile to increase lending to companies, and added last month that the capital buffers could also be eased.

The FSA said banks no longer need to have a 10pc core capital ratio but can instead hold a fixed amount of capital.

Buffers

The aim is to get banks to strengthen their capital and also be able to dip into buffers at times of difficulty so they can keep lending.

Andrew Bailey, head of the FSA's prudential business unit, said last week banks can cut the amount of capital they hold to the minimum requirements and trim their cash-like liquidity buffers to help increase lending.

The regulator will also not require banks to hold extra capital against new lending that qualifies for a "funding for lending" (FLS) scheme targeted at loans to corporate borrowers.

Confirmation that the shift in policy was now being implemented lifted bank shares, as British regulators have been among the strictest in implementing new global regulations.

Minutes of the FPC's September meeting showed it wanted banks to tap outside investors for capital and said policymakers had a range of views about the existence and strength of any trade-off between tighter regulation and greater lending.

The shift to a fixed amount of capital from a capital ratio chimes with a move by the European Union's banking regulator last week.

The European Banking Authority said EU banks, which had been required to hold capital of 9pc of their risk-weighted assets, will in future be told to hold a set amount, so they do not need to top up capital if they increase lending.

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