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Politicians want growth. Bank regulations are seeking safety. This makes the watch dog an enviable position. When they alleviate the rules and expand their economy, they rarely gain trust. If they are all stagnant, they will be carried on coal.
For this reason, the Bank of England and its Prudential regulatory authorities are currently under pressure to cut red tape. Fortunately, there is one way to do so without betraying the principle. That is to loosen the grip at a small bank.
After the 2008 financial crisis, the regulatory authorities ordered a large bank to procure bonds to be written down or fairly converted in case of loss. This decreases if the risk of salvation provided by tax is collapsed. In the UK, when the lender has £ 15 billion to 25 billion pounds, the requirements known for its purely acquired Mrel are kicked in.
The problem is that although the economy has grown nominally since these rules were set, it was not the same for £ 25 billion. This is a big deal for banks close to the limit, as the authorities have acknowledged. The OSB Group, which began raising MREL -qualified debt in 2023, paid £ 44 million in the first half of last year. This is equivalent to almost 20 % of the profit before tax.
Edge companies can take great acquisitions to reduce lending growth and try to make higher costs worthwhile. Neither is a good result for regulatory authorities.
The solution proposed by the bank is to start the MREL rules between £ 20 billion and £ 20 billion. It states that since the rules were finally reviewed in 2021, it is not necessary to continue to change to reflect economic growth and “prevent them” in the future.
It looks like a great gesture -except that the nominal GDP has actually increased by 40 % since the nominal range was set in 2016. prediction. The range can be lifted from £ 22 billion to £ 37 billion, even before the “future proof” or the risk selection coordination.
Banks can at least comfort the UK with the knowledge that they have set more cautious restrictions than the Euro and US colleagues. Small American lenders with important lobby activity have long been used to sculptures and exceptions from troublesome regulations because they are important for employment and growth.
Regulatory authorities will begin to sift through answers to discussions on MREL proposals this week. Banks have already known what most of the answers say, as the bank has been complaining about the worthy values for many years. It may be worth listening this time.
This article has been revised so that England Bank will supervise the bank’s resolution function instead of PRA.
nicholas.megaw@ft.com
