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NatWest chair Sir Howard Davies has called on UK regulators to embrace a bank-friendlier approach when setting rules on capital requirements, which would take in “legitimate national interests”.
Watchdogs at the Bank of England should “carefully” watch the fierce US backlash against hiking capital before finalising their own version of the latest global rules, Davies said on Tuesday.
The Federal Reserve’s proposals on the final package of Basel reforms envisage a 16 per cent rise in US banks capital, prompting JPMorgan Chase’s veteran chief executive Jamie Dimon to ponder whether his regulators “want banks to ever be investible again”.
Goldman Sachs CEO David Solomon has also decried the measures, and a US finance lobby group has launched a campaign that calls on regulators to stop the reforms that otherwise will “create a drag on our economy for years to come”.
Speaking at an event hosted by the BoE, Davies said he hoped the central bank’s Prudential Regulation Authority would “watch that debate carefully before finalising our rules”.
“Other countries are very alert to the implications of Basel accords for the particular circumstances of their own banking markets. Think of the fuss the Germans make if SME lending is treated more severely [ . . ] there are legitimate national interests at stake.”
His comments come as banks face the so-called endgame of post-crisis capital demands against a challenging backdrop. Mounting economic risks and volatile financial markets are overshadowing banks’ complaints about excessive conservatism and overly burdensome rules.
The UK government retains a 38.6 per cent stake in NatWest after a taxpayer bailout at the height of the financial crisis.
The BoE event was framed as an opportunity for regulators and industry to tease out the PRA’s controversial new secondary mandate to advance competitiveness and growth.
Davies did not make any reference to the debanking scandal at NatWest’s elite private bank Coutts, which prompted the resignation of his chief executive, Dame Alison Rose, in July.
Davies, who is due to step down as NatWest chair in April, said that the BoE’s plans for adopting the global package on bank capital rules were already more penal than the EU’s, which would put the UK’s banks at a “competitive disadvantage” to their nearest neighbours. He hoped regulators had a “powerful justification” for their approach, he said.
The PRA is due to publish its final rules by the end of the year.
The BoE’s central belief is that competitiveness and growth are underpinned by higher standards, not cutting capital burdens. It has committed to improving operational efficiency and being “responsive” to the industry’s efforts at innovation.
Davies said: “We cannot assume that the major institutions on which the system is built can sustain ever-increasing capital requirements, and more and more costly consumer-focused interventions.”
“As a chairman I spend more time than most with investors and are very concerned that the authorities pay too little attention to their view on the investability of the sector,” he added.
The UK and EU’s decisions to halt dividend payment during the Covid pandemic has had a lasting damaging effect on the sector, he said.
The septuagenarian chaired the UK’s financial regulator from 1997 to 2003. The now-defunct Financial Services Authority, widely criticised for its light-touch approach in the run-up to the financial crisis, had a competitiveness mandate.
