The Central Bank of England has changed the timing of the implementation of the banking sector reform process, postponing the start of relevant activities to the summer of 2025.
The media reports that these intentions of the financial regulator of the United Kingdom are part of a larger and global strategy aimed at ensuring a high level of protection of the banking industry from the risks that provoked the crisis of 2007-2008.
The new rules of the Bank of England, which are the conceptual and essential basis of the reforming postponed to mid-2025, will limit the ability of lenders to independently determine the amount of capital needed for lending activities and the implementation of deals.
The media, citing insiders informed about the intentions of the financial regulator of the United Kingdom, which have not yet been made public, report that an official statement on the deadline for the introduction of new rules for regulating processes in the mentioned environment in July 2025 will be made in the coming weeks. In this case, a noteworthy circumstance is that the adjustments made to the plans of the Bank of England, in terms of timescale, are similar to the schedule for the entry into force of regulations of the same nature for creditors in the United States.
Last month, the media reported that representatives of the UK financial industry announced the need to postpone the introduction of new rules. They urged the Bank of England to wait six months for the local banking sector to be able to compete with Wall Street.
In the United States, the implementation of Basel IV measures is scheduled for June 2025. As a result of the entry into force of the new rules, the capital requirements of local creditors will increase by about 16%.
British companies operating in the financial sphere are of the opinion that using two different capital management regimes in two countries is too expensive a process. These firms are also concerned about the situation with competition in markets where lenders trading in London work in the same area as banks trading in New York.
Jared Chebib, a partner at the Ernst & Young consulting firm, says that the proposal to postpone the implementation of Basel IV in the United States until July 1, 2025, creates problems with inconsistency between jurisdictions. He noted that the potential negative situation is especially relevant for global financial institutions whose headquarters are located in the UK.
Simon Hills, head of prudential analysis and capital management at the UK Finance lobby group, says that a six-month delay in itself is not a significant benefit for creditors from the United Kingdom. Separately, he noted the unwillingness of the British banking sector to be in different timescales in different major jurisdictions.
In the US, the proposed rules of a similar nature have a certain degree of support. Representatives of the banking sector and Republicans in Congress welcomed the new norms. At the same time, many experts warn about the likelihood of long-term negative consequences on a global scale associated with an increase in the level of requirements for creditors’ capital. Proponents of this position argue that banks may lose part of the business, which will be transferred to fintech companies. The heads of traditional financial institutions have stated the likelihood of a significant impact of new capital requirements on the state of affairs in the industry.
JPMorgan CFO Jeremy Barnum says that an increase in the level of capital requirements may provoke a revision of prices for products and services. He noted that the probability of realization of this prospect confirms the belief of the bank, of which he is a representative, that the growth in capital affects the real economy.
As we have reported earlier, Bank of England Raises Interest Rates.