Be simple in banking capital, Bank of England tells global regulators

A general view shows the Bank of England in the City of London financial district in London, Britain November 5, 2020. REUTERS/John Sibley

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LONDON, April 26 (Reuters) – Banks’ complex system of capital buffers could be radically simplified to encourage banks to keep lending in a downturn, the Bank of England’s (BoE) deputy governor said on Tuesday. ), Sam Woods.

As economies slumped during shutdowns to combat COVID-19 in 2020, banks were reluctant to dip into their reserves to continue lending, fearing a backlash from investors worried about another capital raise. .

The Basel Committee of Global Regulators, whose members include the BoE, is studying how to make buffers more usable after what happened during the pandemic.

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Woods proposed a “Bufferati”, or more streamlined system for Basel to consider.

“My simple framework revolves around a single, releasable buffer of common stock, sitting above a low minimum requirement,” Woods said at the City Week event in London.

“It would be radically different from the current regime,” Woods said. Regular stress testing of lenders would determine capital levels.

The prospect of countries joining us is remote in the short to medium term, given the years it will take to make even incremental changes to the Basel banking capital rules, which Britain has pledged to apply as a global financial center.

The latest batch of new Basel rules are already delayed two years to 2023 in Britain and Europe.

“At the very least, it might amuse my colleagues on the Basel Committee as they get down to the serious task of evaluating the current model,” Woods said.

Regulators would determine each bank’s capital needs, based on an analysis of the risks on the bank’s books and the general macroeconomic climate, he said.

All thresholds, triggers and cliffs – a reference to consequences such as automatically stopping dividend payouts if a buffer falls below a certain level – could be replaced with a judgement-based ‘intervention ladder’ , he added.

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Reporting by Huw Jones Editing by Catherine Evans and Mark Potter

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