Britain’s biggest lenders will be required to hold more capital than smaller rivals to ensure they can keep credit flowing into the economy, under proposals from the Bank of England.
In the latest effort to avoid another taxpayer bailout of the banking system, Threadneedle Street will require the divisions of banks involved in lending to businesses and individuals to keep some capital in a “systemic risk buffer”.
This buffer will be set separately for each bank depending on their importance to the UK economy and will be in addition to its existing regulatory capital cushion. The Bank said it could be used “where there is a risk of disruption in the financial system with the potential to have serious negative consequences for the financial system and the real economy of a specific member state [of the European Union]”.
Policymakers do not expect banks to raise more capital from shareholders or bondholders to meet the new rules but rather to reallocate existing capital.
Sir Jon Cunliffe, the Bank’s deputy governor responsible for financial stability, said: “These new rules will mean that large UK banks and building societies are more resilient to adverse shocks, enabling them to continue to lend to households and businesses even in times of stress.
“The financial crisis demonstrated the long-lasting damage that can be caused when large banks become distressed and have to cut back lending to the economy. These proposals are intended to reduce the risk of this happening again.”
The capital rules apply to the part of a bank inside the “ringfence”, which banks must erect between their high street and investment banking arms to comply with the recommendations set out by Sir John Vickers in his 2011 review into banking. Banks such as HSBC, Barclays and Royal Bank of Scotland must comply with these rules by 2019.
This article was written by Jill Treanor, for theguardian.com on Friday 29th January 2016 14.44 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010