Bank of England eases bank capital requirements in bid to boost growth

By Lawrence White and Phoebe Seers

LONDON, Dec 2 - Britain's central bank on Tuesday cut the amount of capital it estimates lenders need to hold in a bid to boost lending and stimulate the economy in the first reduction to bank capital demands since the financial crisis. 

The Bank of England said its capital framework review showed that the benchmark for Tier 1 capital requirements for lenders, set at 14% since 2015, could be reduced by 1 percentage point to 13%.

Bank executives and investors had expected some sort of an easing in recent weeks after earlier signals from central bank officials.

BOOSTING GROWTH A PRIORITY FOR LABOUR GOVERNMENT

The BoE said it would also launch a review of the implementation of the leverage ratio for banks, an initiative that could further ease requirements for lenders.

The moves mark the most concrete steps yet by British financial authorities to make good on a pledge to help boost economic growth, which the ruling Labour government has said is a priority.

Banking regulators worldwide raised capital requirements in the wake of the 2008 global financial crisis to ensure the system had better buffers to withstand liquidity crises, but industry bosses in recent years have argued such reforms have served their purpose and called for a lighter touch.

The BoE also said on Tuesday that the seven biggest lenders including HSBC, Barclays, Lloyds Banking Group and NatWest had all passed its stress tests assessing banks' resilience to severe macroeconomic and financial shocks.

The BoE said its change on the estimate for bank capital reflected an updated assessment of the benefits of capital helping banks withstand crises, against the drawback of higher capital costs weighing on growth.

TRUMP ADMINISTRATION SET TO EASE CAPITAL RULES

In the United States, the Trump administration is expected to ease capital rules for the biggest banks, while the European Union is working on plans to simplify its prudential framework.

Industry body UK Finance has warned that without similar moves, British banks could lose market share to global rivals.

The new level of 13% comprises an underlying optimal level of 11%, plus 2 percentage points to account for outstanding gaps and shortcomings in measurement of risk-weighted assets, the BoE said.

British bank executives in recent weeks had sounded optimistic about the potential for such a change, especially after BoE Deputy Governor Sarah Breeden earlier this year said the central bank was considering how to free up banks' use of their capital.

The BoE's Financial Policy Committee (FPC) has been reviewing potential changes to the capital structure since July, amid a broader push by Britain's Labour government for regulators to prioritise economic growth as well as financial stability.

"Given the reduction in the FPC’s benchmark, banks should have greater certainty and confidence in using their capital resources to lend to UK households and businesses," the BoE said in its report.

(Reporting by Lawrence White and Phoebe Seers; Editing by Tommy Reggiori Wilkes and Sharon Singleton)