England’s central bank is reportedly being pressured to forestall new capital requirements.
That pressure, the Financial Times reported Sunday (Aug. 6) is coming from the British finance industry, which wants the Bank of England to hold off on adopting the rules for six months to give the UK’s finance sector the ability to compete with Wall Street.
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According to the report, the bank had planned to put the new rules into effect beginning January 2025. However, the U.S. is set to implement the Basel IV measures in June of that year, upping U.S. bank capital requirements by about 16%.
The FT says that British finance firms say it would be expensive to operate two different regimes in different countries. They also worry about competition in markets where banks that trade in London compete with those that trade in New York.
“The proposal ... to push back the U.S. Basel IV implementation schedule until 1 July 2025 creates challenges with misalignment across jurisdictions, particularly for global banks headquartered in the U.K.,” said Jared Chebib, a partner at advisory firm EY.
Simon Hills, head of the prudential and capital team at lobbying group UK Finance, told the FT that while a six-month hold would not provide much value for U.K. banks on its own, “our thinking is that we don’t want to be on different timescales in different major jurisdictions.”
Central banks in the U.K., U.S. and Europe are updating their capital requirements in the wake of the banking crisis that rocked the sector earlier this year.
In the U.K., the Bank of England is reportedly also considering new restrictions on international banks doing business in the country, and could force more foreign banks to set up British subsidiaries, rather than open branches.
This plan would also apparently lower the threshold requiring international banks with corporate businesses in England to open subsidiaries, using their own liquidity and capital. It would also allow U.K. regulators to take over failing banks. This move could be unpopular among banks, as establishing a subsidiary in another country is more costly than running a branch.
“The ability to utilize branch structures is an important part of what makes London a successful and connected international financial center,” Giles French, chief executive of the Association of Foreign Banks, said in an interview with the Financial Times last month.
The new requirements have drawn criticism on both sides of the pond. Last week, J.P. Morgan Chase CEO Jamie Dimon said the Federal Reserve and Federal Deposit Insurance Corp.’s proposed requirements would make mortgages and loans less affordable.
“It’s hugely disappointing,” Dimon said of the capital requirements, adding the “operational risk capital is based on a model that makes no sense.” Source
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