Bank of England to Ease Capital Pressure on U.K. Banks -- 3rd Update
December 01 2015 - 5:47AM
Dow Jones News
By Max Colchester, Jason Douglas and Margot Patrick
LONDON--The Bank of England Tuesday said it would ease pressure
on U.K. banks to hold more capital, drawing a line under years of
post-crisis reforms aimed at making the banking sector safer.
The central bank said that capital requirements wouldn't
continue to creep up in coming years stating that lenders needed to
hold Tier 1 equity of 11% of risk adjusted assets by 2019, a target
that most banks have nearly already hit.
"The system is in sight of where it needs to be," Bank of
England Governor Mark Carney told reporters. "There is no new wave
of capital requirements coming."
The announcement came as the Bank of England issued the results
of its latest U.K. bank stress test. The Royal Bank of Scotland
Group PLC and Standard Chartered PLC both failed aspects of the
balance sheet check but the central bank stopped short of forcing
them to raise more capital.
The softer tone from the Bank of England comes as it feels more
confident it can safely wind-down broken banks and because lenders
hold debt that can be written off in times of crisis.
British banks have recently undertaken a broad lobbying campaign
pushing regulators to loosen rules or risk damaging the U.K.'s
attractiveness as a financial center. Mr. Carney's pledge was
welcomed by markets with British bank stocks rising in morning
trading.
The U.K.-focused banks led the stock rises. RBS and Lloyds were
up 3% and 2.7% respectively, while Barclays led the pack, up
3.1%.
Asia focused HSBC and Standard Chartered were up more moderately
1.36% and 1.5% respectively.
The Bank of England can still tweak capital requirements
depending on the strength of the economy using a new tool called
the "counter cyclical capital buffer." The buffer is currently at
zero but officials signaled they will consider raising it in
March.
A 1% increase would be equivalent to GBP10 billion ($15.10
billion) of extra capital. But the central bank said some of that
would come from reallocating capital already held by banks.
The stress test saw a hypothetical scenario where the eurozone
and Chinese economy contracts, commodity prices crash and banks
wrestling with the default of a handful of major trading partners.
Meanwhile fines for bad behavior shot up. Two of the seven banks
tested, RBS and Standard Chartered, were singled out for weaknesses
by the Bank of England but have already taken action to strengthen
their balance sheets, the central bank said Tuesday.
Seven British based banks needed to maintain a ratio of core
Tier 1 equity to risk weighted assets of 4.5% to pass the test but
were also assessed individually. Banks that fell short would have
needed to raise equity or further shrink their balance sheets.
The banks tested were RBS, Barclays PLC, HSBC Holdings PLC,
Lloyds Banking Group PLC, Nationwide Building Society, Santander
U.K. and Standard Chartered.
RBS didn't meet an individualized capital requirement set by the
regulator. The central bank said that the state-controlled lender
had already planned to issue bonds which would address any
shortfall. Asia focused Standard Chartered didn't hit a key measure
but still passed the test, the Bank of England said. The bank has
already outlined plans to raise $5.1 billion in equity and
restructure its business.
The results of the stress test were published alongside the Bank
of England's twice-yearly assessment of the risks facing the
financial system. Officials cited potential threats from certain
corners of the real-estate market and financial-market fragility,
but concluded the risks weren't strong enough to warrant any new
policy actions.
Write to Max Colchester at max.colchester@wsj.com, Jason Douglas
at jason.douglas@wsj.com and Margot Patrick at
margot.patrick@wsj.com
(END) Dow Jones Newswires
December 01, 2015 05:32 ET (10:32 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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