Executives say gold-plating of capital standards could lead to ‘entrenched benefit’ for EU competitors
If UK banks were hoping for an easier ride after Brexit from regulators on the capital buffers they must hold against shocks, they have suffered an early disappointment.
At first, second and third glance, the UK’s proposals for implementing the latest package of global bank capital standards clash with the government’s pledge to make the City of London a more accommodating place for financial services after the EU divorce.
The Bank of England, even by its own account, is going for a stricter implementation of the rules than the EU.
Authorities in the bloc are considering so many deviations from the new global standards that the EU risks material non compliance with them, according to its top regulators.
UK bank executives and their lobbyists are largely unpersuaded by the BoE’s assertion that a stringent approach will help them, a claim that hinges on the value investors place on high standards.
The bankers argue that investors will be more concerned about the raised costs and lower returns that go hand in hand with what they see as gold-plated standards versus those in the EU.
Some of the granular details in the BoE’s proposals are also attracting spiky criticism from bankers who question how they fit with high-level promises from politicians such as chancellor Jeremy Hunt to turbocharge the City’s growth with reforms.
The issue of how banks should treat small business loans is one area of contention. In its efforts to make capital requirements more sensitive to risks in the property market, the BoE is proposing a tweak to global rules, making small business loans backed by commercial property effectively more costly for banks than those for equivalent firms backed by no collateral.
“That’s the bit we’re most alarmed about,” a senior executive at one UK lender says, describing the measure as “completely illogical” and “really really damaging” since a high percentage of loans for small and medium enterprises are secured on property....
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