Tuesday 20 March 2018

UK banks forced to hold extra capital to lend at home

The Bank of England. Photo: PA
The Bank of England. Photo: PA

Huw Jones and William Schomberg

Banks which have a global footprint and big retail lending activities in Britain might have to set aside slightly more capital from 2019, the Bank of England said yesterday.

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, published a final set of rules on how much capital banks must hold to wrap around their retail arms.

After consultations, the bank tweaked the rules to reflect how the three biggest British lenders - HSBC, RBS and Barclays - have separate global capital requirements to comply with as well.

The UK rules on domestic capital buffers will mainly affect RBS because, under its current structure, it has a large retail arm while its global capital requirements are relatively low. That means there could be a potential mismatch in the event of a future international banking crisis, raising the risk of banks not having enough capital to deal with a crisis at a global level.

Ulster Bank parent RBS, however, is shrinking its international operations and might not be affected by the time the rules take force in 2019.

The BoE has set a target for the UK banking system as a whole to hold capital equivalent to 13.5pc of risk-weighted assets, a level that has already been largely reached.

The changes announced yesterday aimed to ensure that the ring-fenced retail arms of HSBC, RBS and Barclays do not end up raiding their global capital pots.

The BoE's Financial Policy Committee said the impact of the new rule would be "very small at present".


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