BoE sketches out lighter regime for small banks

Banks in Britain with no more than 15 billion pounds ($19 billion) in assets could benefit from lighter capital requirements given they would pose less of a risk to financial stability if they went bust, the Bank of England said on Friday.

Britain’s departure from the European Union makes it possible for the country to tailor its bank capital rules. The Bank of England published a consultation paper that began fleshing out its previously flagged plans for a “strong and simple” capital regime for smaller, less risky banks to avoid the complex rules applied across the board currently.

The BoE’s Prudential Regulation Authority (PRA) said banks that want to benefit from the new regime must not have a trading book worth more than 44 million pounds, or be equivalent to 5% of the bank’s total assets.

“The PRA does not consider significant foreign exchange or any commodity positions consistent with the aims of the simpler regime,” it said.

The “simpler” banks must also use rules set out by regulators when it comes to calculating how much capital to hold and would not be allowed to use their own computer models.

Banks providing wholesale services or some clearing, settlement and custody services would also be excluded, the PRA proposed in its paper.

At least 85% of a bank’s loans and deposits would be with customers inside the UK, it added. The PRA estimated that 61 firms would be eligible for the simpler capital regime, 34 of which are building societies.

The regulator said it would publish proposals for liquidity rules for “simpler” banks in the first half of next year, followed by proposals on capital requirements in 2024.