Even though the Basel banking-regulations are adhered to by all European banks, England’s largest banks have special permissions to use custom “bespoke” models when calculating their loan-loss reserve requirements rather than the standard Basel risk-weights that smaller banks are forced to use.
What does this mean? It means large UK banks have an enormous advantage over smaller banks as they don’t need to carry nearly the amount of reserves that responsible smaller banks must carry.
Now the Bank of England has piped up in defense of England’s smaller banks. The BoE has announced it’s “concern” that larger banks just might have a (shock) unfair advantage over smaller banks due to the differing reserve-requirements.
So you might think the Bank of England recommended that England’s larger banks also begin adhering to the standard Basel protocols to which smaller banks are bound. Not a chance. The Bank of England is now pressing to allow smaller banks to be equally irresponsible by easing some of their requirements.
ie: Less regulation.
The Bank of England has been lobbying for an easing of global capital requirements for small banks, amid concerns that the rules make it harder for them to compete with larger rivals when they offer mortgages and small business loans.
Officials from the BoE’s Prudential Regulation Authority have been trying to convince the Basel Committee on Banking Supervision, which sets worldwide rules, to soften the standardized risk weights used to calculate how much capital needs to be set aside for individual loans.
However, the UK has found itself in a minority on the committee because other regulators are more concerned about preventing fresh housing bubbles and reassuring their electorates that banking systems are secure.
Again, we see that nothing has changed. The Bank of England is incapable of enacting regulatory policy that in any way curtails the liberties of its largest banks. Here we are just a few short years after the largest financial collapse in history — the cause of which is commonly acknowledged to be too-lax regulatory policy — and the BoE is pushing to “ease” capital requirements for the majority of its banks.
One must also note that the non-UK members of the Basel Committee expressed concerns about “fresh housing bubbles”, while back in London real-estate continues to go stratospheric.
The only “solution” the Bank of England could manage to propose is to “ease capital requirements”, taking us all one step closer to the dangers we faced in 2008. Fortunately the Basel committee is (at least for the time being) having none of it.
Perhaps the Bank of England should instead require England’s largest banks to put aside their “bespoke models” and adhere to standard risk-weights. Or would that prick your supposedly non-existent real-estate Bubble, Mr. Carney?