BoE Backs Banks’ Push To Ease Capital Regulation

Banks around the world are crying foul over the new leverage ratio rule that is being finalized by the Basel Committee. And Bank of England just joined their corner, stating that the final regulation should be amended. What’s more, the Bank of England said the Basel rules that have to do with derivatives may force banks to increase the prices it charges customers or leave the market entirely.

The rule will come in to effect in 2018 and is designed to increase the banks’ financial strength, as well as measure their capital against the total assets of the firm. Global banks that are opposed to the rule argue the leverage ratio is not flexible when determining what should be in the calculations. What’s more, they argue it could become the main determinant of capital requirements instead of a backstop measure, which it was designed to serve as.

Six banking and markets groups on Thursday (July 7) backed the Bank of England, calling on the Basel Committee to amend the proposals for the ratio.

“It is vital that the leverage ratio is calibrated in a way which does not constrain efficient financing for economic growth and job creation,” said Tim Adams, president of the Institute of International Finance, in a joint statement with four other industry bodies.

In the Bank of England’s twice-yearly Financial Stability Report, it said the leverage ratio in its current form could discourage market making activity and, as a result, there is merit to amending it. The Basel Committee already tried to ease concerns about the leverage ratio rule by fixing it at 3 percent for most of the banks around the world. That was in line with the preliminary level that was decided upon during the height of the financial crisis. The move by the Bank of England is a shift in its stance. Bank of England has been on the hawkish side ever since the financial crisis.