CareCredit - Women's Health April 2024

UK Banking Sector Reforms Pushed Back Six Months

England’s central bank is putting new banking reforms on hold until the summer of 2025.

As the Financial Times (FT) reported Sunday (Sept. 24), the Bank of England’s (BOE) new rules are part of a larger effort to protect the banking industry against the type of risk-taking that led to the 2007-2008 financial crisis.

The BOE’s rules would place limits on banks’ ability to determine how much capital is necessary to back certain loans and trades. The central bank is planning to release a July 2025 implementation deadline in the weeks ahead, in line with the same schedule for banks in the U.S., the FT reported, citing sources familiar with the plans.

Last month saw reports that the U.K.’s finance industry wanted the BOE to wait six months to adopt the new rules to allow the British banking sector the chance to compete with Wall Street.

The U.S. is set to implement the Basel IV measures in June of 2025, increasing bank capital requirements by about 16%.

British finance firms have argued that it would be costly to operate two different capital regimes in two countries, and worry about competition in markets where banks that trade in London compete with those trading in New York City.

“The proposal … to push back the U.S. Basel IV implementation schedule until 1 July 2025 creates challenges with misalignment across jurisdictions, particularly for global banks headquartered in the U.K.,” Jared Chebib, a partner at advisory firm Ernst & Young, said in an interview with the FT. 

And Simon Hills, head of the prudential and capital team at lobbying group UK Finance, told the news outlet that while a six-month delay would not yield much value for U.K. banks on its own, “our thinking is that we don’t want to be on different timescales in different major jurisdictions.”

As PYMNTS reported last week, the proposed regulations have gotten some pushback in the U.S., both from industry figures and congressional Republicans.

And as was also noted here, higher capital requirements could have a negative ripple effect on banks — with lost business ultimately being captured by FinTechs. Executives of traditional financial institutions have said during recent earnings calls that the impact could be significant. 

For example, J.P. Morgan Chief Financial Officer Jeremy Barnum said higher capital requirements could trigger the “possibility of a repricing of products and services, which, of course, goes back to our point that these capital increases do have impacts on the real economy … a little bit of a straight-up across-the-board tax on everything.”