BoE raises prospect of lower capital requirements for small banks

By Huw Jones

LONDON, Dec 14 (Reuters) - Britain's new banks are likely toobtain relief on the amount of capital they must hold to coverthe risk of default on home loans, a top Bank of Englandofficial said on Wednesday.

Though 20 so-called challenger banks have entered the marketin recent years, they have yet to win any significant marketshare and complain that they face unfair competition from thefour biggest lenders HSBC, Lloyds, Barclays and RBS.

The newcomers, including the likes of Virgin Money and Aldermore, argue that they have to set asidedisproportionately high levels of capital compared with the BigFour.

Bank of England deputy governor Sam Woods said this isbecause they have to follow standard rules on calculatingcapital buffers while the larger lenders have the resources touse in-house models that typically produce lower figures.

But the situation could change if global regulators at theBasel Committee reach a deal in January on a new package of bankcapital rules, including a more proportionate approach instandard rules for home loans.

"There is a reasonable prospect of landing that," Woods toldparliament's Treasury Select Committee.

However, he warned that he won't go soft on capital. "Weneed robust capital requirements for all banks," he said.

The queue for banking licences is still reasonably strongafter the 20 already authorised since 2013.

"I am expecting this number to increase. It was not just aone-off hump," Woods said.

Regulators are under pressure to boost competition after thecommittee ripped apart a recent review of retail banking by theCompetition and Markets Authority for failing to take radicalaction.

Treasury Select Committee Chairman Andrew Tyrie said thatlawmakers are "very eager" to see millions of retail bankcustomers get a better a deal.

(Reporting by Huw Jones; Editing by David Goodman)