UPDATE 1-Bank of England eyes minimum risk rule for banks' home loans

* Recovery from COVID may affect timing of rule-change

* Woods hints at easing rules for global banks in London
(Adds more detail)

By Huw Jones

LONDON, May 5 (Reuters) - There is a "strong case" for
minimum rules for mortgages across all banks to ensure fair
competition in the home loans market, Bank of England Deputy
Governor Sam Woods said on Wednesday.

Banks attach a risk weighting to each home loan on their
books, and these are added up to determine how much capital they
set aside in case of defaults.

The BoE has been concerned about a significant fall in
mortgage risk-weights at banks that use their own internal
calculation models, compared with typically smaller lenders who
follow guidelines set out by regulators.

"This has led to increased prudential risks, and an
increasing divergence between firms that use these models and
firms that do not," Woods told the Building Societies' annual
conference.

The Bank has consulted on possible changes such as mandating
a risk-weight of at least 7% on every home loan, and an average
weight of 10% across a portfolio of loans, to iron out the
differences between banks.

Woods said feedback to the consultation showed there is a
strong prudential case for some "floors", or minimum
expectations on risk-weights from in-house models.

"Second, in addition to the prudential benefits, such floors
should in my view benefit competition between larger firms on
modelled and smaller firms on non-modelled approaches, an issue
our competition team has been alert to for some time," Woods
said.

It was unclear if both the floors proposed by the BoE were
needed given the need to avoid a significant rise in overall
capital, Woods said.

Leaving the European Union has given Britain more
"regulatory flexibility" and the government wants to bolster the
City of London's attraction for global banks.

"We also need to consider the position of foreign banks that
operate in the UK," Woods said.

Internationally active banks will continue to be in scope of
international standards, and it may be appropriate for
subsidiaries of international groups to stick with the
international standards, Woods said.

"But we have an open mind on this," he added.
(Reporting by Huw Jones; editing by John Stonestreet and Hugh
Lawson)