Bank Of England Adjusts Capital Regime Following Industry Pushback

Bank Of England's Revised Capital Regime

The Bank Of England has watered down plans to impose tougher capital rules on UK banks and delayed the introduction of the new regime until 2026. In a statement on Thursday, the Bank Of England’s Prudential Regulation Authority said the changes included easing capital requirements on small business lending, mortgages, trade finance, and infrastructure loans.

Details of the Changes

As a result, the key capital thresholds for the main banks would be virtually unchanged, with an increase of less than 1 percent, revised from an earlier estimate of 3 percent. The revised plans are part of the Basel III regime, aimed at increasing equity available to absorb stress in banks and prevent state bailouts reminiscent of the 2008 financial crisis.

Response from Industry Leaders

• Sam Woods, head of the PRA, stated that the proposals would support growth and competitiveness.
• The changes followed heavy lobbying by the industry.

However, some economists warn that this shift could promote risk-taking by banks, potentially leading to future crises.

Impact on Share Prices

Shares in the UK’s largest banks, including Barclays, Lloyds Banking Group, HSBC, and NatWest, rose between 1 and 2 percent in early trading.

Analyzing the Future

Chancellor Rachel Reeves welcomed the proposals, emphasizing that they would strengthen the resilience of the banking system. Nevertheless, concerns linger about the implications of diluting Basel rules.