UK lenders face smaller impact from Basel rules than rivals, BoE says

By Huw Jones

LONDON (Reuters) -The Bank of England said on Tuesday that implementing the final leg of the global Basel bank rules will increase capital requirements at UK banks by 3%, far less than for their European Union and U.S. peers.

Regulators began rolling out the tougher capital rules after the global financial crisis of 2007-09 when taxpayers had to rescue ailing banks.

Britain, the EU, U.S. and other countries are now finalising how they will implement the final leg of the so-called Basel III capital standards, tailoring them to local circumstances.

The BoE published on Tuesday the first of two “near final” policy statements on implementing the Basel rules, saying it had made some tweaks to its original proposals following a public consultation.

The BoE said it estimates the impact of the final leg of Basel on UK banks will be “low” at an average increase in Tier 1 capital of about 3.2% once fully phased in by January 2030, down from an estimated 6% increase last year as data is refined.

“This is lower than the European Banking Authority’s estimate of a Tier 1 increase of around 10% in the EU and the US agencies’ estimate of a CET 1 increase of around 16% for US firms,” the BoE said.

U.S. banks have mounted a heavy lobbying campaign against the Federal Reserve’s proposals for implementing Basel, which follow several bank failures, including Silicon Valley Bank, earlier this year.

“The rules published today implement the latest Basel standards in the UK and include appropriate adjustments to take on points raised by respondents to our consultation,” BoE Deputy Governor Sam Woods said in a statement.

Britain and the United States have said they will begin rolling out the final phase of Basel III in mid-2025, with the EU, which has already finalised its Basel rules containing several temporary waivers, starting in January 2025 but with longer phase-ins.

Markets industry body AFME said it will be important to coordinate the timeline for implementing Basel internationally to avoid harming the UK’s competitiveness.

The BoE said its alterations boost competition by narrowing the advantage big banks have in using their own models to calculate capital buffers, over the more conservative norms for smaller lenders, to make capital ratios more comparable.

More substantive changes are expected in a second policy paper in the second quarter of next year covering a minimum capital “floor” for lenders that use their own calculation models, which is expected to cut the capital hit further.

“The second statement, due out in Q2 next year, will be much more important for firms’ ability to boost the UK’s economic growth through lending,” said Simon Hills, director of prudential policy at UK Finance, a banking industry body.

Tuesday’s statement includes an interim capital regime that small, domestic focused banks can apply as an alternative to Basel.

(Reporting by Huw Jones; Editing by Jason Neely, Jamie Freed, Louise Heavens and Tomasz Janowski)