(Bloomberg) — The Bank of England outlined how it plans to impose tighter capital rules on lenders, with the central bank unveiling a variety of adjustments and halving an earlier estimate of the expected capital hit.
The measures, which are known as the Basel 3.1 standards, will mean UK banks would have to boost the amount of capital they hold to absorb unexpected losses by about 3%, according to a Tuesday statement from the BOE’s Prudential Regulation Authority. Twelve months ago, an official estimated the effective increase at 6%.
The new expectation is a fraction of the hit that lenders in the US and Europe are bracing for. US banks could face an increase of around 16% while EU firms could see a jump of about 10%.
After receiving more than 120 responses to a consultation paper it published last year on the Basel proposals, the PRA opted to adjust some of the new rules. For instance, it removed a requirement for banks to use market risk internal modeling to assess the default risk of their exposure to sovereigns.
“The focus of these rules is not on the aggregate amount of capital in the system but on making sure that risk is properly captured across a range of firms and activities,” Sam Woods, deputy governor of prudential regulation and chief executive officer of the PRA, said in the statement.
The adjustments are meant to “enhance the relative standing of the UK as a place for internationally active firms to operate and improve the clarity of rules,” according to the statement. Regulators are planning to implement the new Basel 3.1 standards in July 2025.
Separately, the Financial Conduct Authority has written to investment platforms and self-invested personal pension operators setting out concerns about the amount of interest they earn on customers’ cash balances as well as the practice — known as double dipping — of charging a fee to customers for holding cash, according to a statement Tuesday. Firms have been told to review how much interest they retain and stop double dipping, the regulator said.
(Adds BOE’s 2022 estimate of capital hit.)
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