The media reports that the central bank of England is currently under pressure, the purpose of which is to postpone the date of entry into force of the new capital requirements.
According to the information available to journalists, the source of pressure is the British financial sector. Representatives of this sphere want the Bank of England to postpone the time of entry into force of the new capital requirements by six months. They justify their position by the fact that this period will provide the British financial sector with the opportunity to fully compete with Wall Street.
The British financial regulator initially planned to put the new rules into effect in January 2025. The United States intends to implement the provisions of Basel IV in June of the same year. For American financial institutions, this will mean an increase in capital requirements by about 16%.
According to media reports, representatives of the British financial sector argue that the coexistence of two different regulatory regimes in the United States and the United Kingdom will provoke significant costs. They are also worried about market competition, in which frameworks banks from London are in a state of struggle for industry leadership with lenders from New York.
Jared Chebib, a partner at EY consulting firm, says that postponing the implementation of Basel IV in the United States until July 1, 2025, creates a problem of inconsistency between jurisdictions. According to him, adverse circumstances will be especially sensitive for global financial institutions, whose headquarters are located in the UK.
Simon Hills, head of the prudential analysis and capital management department of the UK Finance lobbying group, says that a moratorium lasting six months in itself is not a mechanism that qualitatively changes the situation, but the British financial sector does not want to be in different time frames with one of the largest jurisdictions in the world.
The central banks of the United Kingdom, the United States, and Europe decided to make adjustments to the regulatory provisions on capital requirements against the background of the crisis in the banking sector that occurred at the beginning of this year.
The Bank of England, according to insider information, is exploring the possibility of introducing new restrictive measures for international lenders that do business in the United Kingdom. If the concept of changing the regulatory framework under consideration is implemented, an obligation to establish subsidiaries in the UK, rather than branches, will apply to foreign financial institutions.
Also, possible new measures are likely to lower the threshold of requirements from international banks doing business in the United Kingdom to open subsidiaries, while using their liquidity and capital. The updated regulatory framework would allow regulators to take control of bankrupt creditors.
The change in requirements under consideration is unlikely to receive approval from banks since the creation of a subsidiary requires significantly higher costs compared to the financial aspect of managing branches.
Giles French, Executive Director of the Association of Foreign Banks, says that it is the ability to use branch structures an important component of the complex of conditions and circumstances that make London a successful and interconnected financial center.
In the US, the new capital requirements were also not enthusiastically received by the banking sector. Jamie Dimon, CEO of J.P. Morgan Chase, said that the norms proposed by the Federal Reserve System and the Federal Deposit Insurance Corporation will reduce the level of availability of mortgages and loans. He says that the relevant intentions of the authorities are disappointing. According to him, the basis of operational risk capital is a model that does not make sense.
