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* Bank of England relaxes countercyclical buffer
* Possible delay to MREL implementation timeline
By Alice Gledhill
LONDON, July 8 (IFR) - UK lenders were given some breathingroom this week when the Bank of England said it was loosening upsome of their capital requirements, though the biggest booncould come from a push back on the deadline to meet lossabsorbing debt requirements.
The BoE reversed a decision it took in March to increase theamount of capital banks must hold during cyclical upturns in thecredit cycle, moving it back to 0% from 0.5% until at least June2017.
Changes to the countercyclical buffer would have no bearingon the banks' need to access bond markets to raise subordinateddebt as it is met with Common Equity Tier 1.
However, a delay in the implementation of European rulesknown as MREL (minimum requirement for own funds and eligibleliabilities), a cushion of loss absorbing debt that would bebailed-in during bank crises, could provide more relief.
UK banks were expecting to receive their MREL numbers aroundnow, though three sources said this could now be pushed back forsome months as the regulator waits for the final EuropeanBanking Authority technical standards.
The implementation deadline of January 2020 could also berelaxed, the sources said.
That would prove a welcome respite for UK banks. Barclays,for instance, has said it would issue £6bn of MREL/TLAC eligibledebt per annum in the coming years.
Such a move would also give Barclays breathing room as ittransitions its stack of opco debt to holdco debt to meet newregulatory standards.
While an MREL delay would be good news, the loosening of thecountercyclical buffer is not expected to impact banks' issuanceplans of Additional Tier 1 capital, which they must raise tomeet minimum regulatory requirements.
RBS said it had to raise £2bn in the format this year whileBarclays has said it expects to be a measured issuer of AT1 andTier 2 debt over the next few years.
Nonetheless, issuance of such debt is unlikely for now giventhat depressed prices make selling such bonds unpalatable.
UK AT1 bonds struggled to perform over the week and onFriday were quoted up to 2.5 points lower. A Barclays £1bn7.875% AT1 callable in 2022 was bid 89.5, for example, down from92.1 on Monday.
WELL PREPAREDWhile UK lenders are not off the hook when it comes to capitalissuance, the loosening of regulatory capital requirements willbe beneficial on other levels.
It will reduce regulatory capital buffers by £5.7bn, the BoEsaid, raising banks' capacity for lending to UK households andbusinesses by up to £150bn.
The countercyclical buffer is designed to enable banks tokeep functioning in times of stress and is therefore actingexactly as it should, bankers said.
"There has been a feeling among some UK banks for many yearsthat UK regulations were being gold-plated but at least this nowmeans that they enter this uncertain period from a position ofstrength," said Simon McGeary, head of European new products atCitigroup.
The move is part of a broader package of measures announcedby the BoE demonstrating the lengths to which it will go tosupport the financial sector, including over £250bn ofadditional funding for banks. Interest rate cuts are alsoanticipated.
"It's interesting to see them pull all three levers -monetary, fiscal and macroprudential," said another source. (Reporting by Alice Gledhill, editing by Helene Durand, MatthewDavies)
