Bank regulator waters down post-crisis lending rules

Big banks will face almost no increase to their core capital requirements after the City regulator again watered down new lending rules aimed at making lenders safer following the 2007-9 financial crisis.
The Bank of England’s Prudential Regulation Authority unveiled a fresh series of concessions on Thursday on its plan to implement international standards known as Basel 3, which have been years in the making.
It said that these changes meant that the Tier 1 capital requirements for major lenders would be “virtually unchanged” by its proposals and would increase in aggregate by less than 1 per cent when the rules fully come into force in 2030. This is down from 3 per cent when it last updated on its plans in December and an earlier estimate of 6 per cent.
In a further boost for lenders, the regulator also again pushed back against the deadline for banks to begin implementing its rules to January 2026 — an extension of six months. This followed a previous six-month delay.
The revisions to the PRA’s package mark a significant victory for the banking industry, which had been lobbying intensely for the regulator to loosen its plans.
The highly anticipated reforms are based on global standards set by the Basel Committee on Banking Supervision, the global financial watchdog, and are meant to be the final step in overhauling capital rules to bolster the resilience of lenders and avoid a repeat of the last crisis.
Regulators around the world have been refining their approach to the rules in the face of pressure from the banking industry to make the reforms less stringent. This lobbying has prompted a big climb down from US regulators, with the Federal Reserve revealing on Tuesday that it was overhauling its proposals to halve the capital increase that the largest American lenders will face.
In the UK, the industry’s arguments for loosening the rules was strengthened by the previous Conservative government, which introduced a secondary objective for financial regulators requiring them to facilitate the UK’s international competitiveness and economic growth
Industry concerns in Britain focused on areas including lending to small and medium-sized enterprises (SMEs) amid warnings that the regulator’s proposals would stymie banks’ ability to serve this area of the economy. As part of the changes announced on Thursday, the authority said that its new plan would result in no increase to capital requirements relative to today for banks’ SME exposures.
There will also be no increase for infrastructure exposures and lower requirements for trade finance-related activities, the regulator added.
Sam Woods, the head of the PRA, said: “We have made a number of important changes following consultation, and the resulting package will support growth and competitiveness while also ensuring that the UK aligns with international standards.”
The revisions were welcomed by Rachel Reeves, the chancellor, who has made turbocharging economic growth her main priority since Labour came to power in July. Supporting the UK’s financial services sector, which she has previously described as “a jewel in the crown of the UK economy”, is central to her plans.
She said: “Today marks the end of a long road after the 2008 financial crisis. Britain’s banks have a vital role to play in helping businesses to grow, getting infrastructure built and supporting ordinary peoples’ finances.
“These reforms will strengthen the resilience of our banking system and deliver the certainty banks need to finance investment and growth in the UK.”