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* BoE doubles UK banks' counter-cyclical capital buffer to
2%
* Buffer will support up to 500 bln stg of lending in a
downturn
* All big UK banks pass 2019 stress test without raising
capital
(Adds Carney quote and reaction from banks)
By David Milliken and Huw Jones
LONDON, Dec 16 (Reuters) - The Bank of England said on
Monday it planned to adjust the rules on how much capital
British banks must hold, to allow them to keep lending in an
economic crisis.
The BoE said its plans would leave the average amount of
capital that lenders need to hold broadly unchanged, but would
allow it to vary more during the course of an economic cycle.
"These changes improve the responsiveness of capital
requirements to economic conditions by shifting the balance ...
towards buffers that can be drawn down as needed," BoE Governor
Mark Carney told a news conference.
Major British lenders currently hold so-called Tier 1
capital equivalent to just under 14% of risk-weighted assets on
average.
The BoE designates 1% of risk-weighted assets as a
'counter-cyclical capital buffer' (CCyB) during normal economic
times, which can be used to support lending in a downturn.
On Monday the BoE said it would double this buffer to 2%, to
take effect by the end of 2020, and then lower other capital
requirements by a similar amount.
This would allow major British lenders to absorb up to 23
billion pounds ($29.5 billion) of losses in a downturn without
restricting lending, supporting up to 500 billion pounds of
loans to British homes and businesses - the equivalent of five
years' borrowing.
Reuters reported last week that Britain's mid-tier banks had
asked the BoE to ease rules they say make it difficult for them
to compete with the likes of HSBC, Barclays, RBS and Lloyds on
an equal footing.
The BoE said on Monday that when it consults on the detail
of the CCyB changes, it would try to ensure they did not lead to
any net increase in smaller banks' capital requirements.
For larger banks, the BoE said the changes would increase
Tier 1 capital requirements by about 0.35 percentage points to
just over 14%.
STRESS TESTS PASSED
Alongside this, the BoE said all of Britain's seven main
lenders passed an annual test of their ability to withstand
financial and economic shocks for the second year running.
The BoE tested HSBC, Barclays, Lloyds Banking Group, Royal
Bank of Scotland, Standard Chartered, Santander UK, and
Nationwide Building Society for their ability to withstand
financial market stresses.
The BoE said no lender failed to meet a firm-specific hurdle
for the minimum amount of capital at the end of the test, in a
repeat of last year's result on a test that was similar in
toughness.
"UK banks are well above capital required hurdle rates and
as a result, capital distributions through dividends and stock
buybacks should increase," said Fernando de la Mora, managing
director at business consultants Alvarez & Marsal.
All the banks in the stress tests said they would not need
to find fresh capital as a result of the tests.
The BoE said Barclays and Lloyds would need to convert some
of their AT1 capital into equity during a stress scenario, if
new accounting rules that fully take effect in 2023 were
applied.
The BoE had already said lenders held enough capital to cope
with the harshest form of Brexit, though a cliff-edge departure
that would severely damage the economy now looks off the table
for Jan. 31.
Britain's newly re-elected government has a comfortable
majority to push through a divorce settlement that will see
Britain leave the bloc at the end of next month and enter an
11-month transition period that lasts until the end of 2020.
($1 = 0.7794 pounds)
(Additional reporting by Noor Zainab Hussain, Editing by
William Maclean)
4 Apr 2024 16:55
LONDON MARKET CLOSE: US initial jobless claims hotter than expected
(Alliance News) - Stock prices in London closed up on Thursday, as investors first digested words from US Federal Reserve Chair Jerome Powell overnight, before reacting to hotter-than-expected US initial jobless claims.
Read more