Bank of England Adjusts Capital Requirements

The Bank of England will implement new rules for UK banks' capital requirements by January 2026, addressing concerns over conservatism and costs. These changes aim to safeguard lenders without harming their global competitiveness. Financial minister Rachel Reeves and BoE Governor Andrew Bailey will discuss the reforms with banking leaders.

The Bank of England is revising its rules on how much capital UK banks need to hold to cope with potential future crises. The adjustments, announced on Thursday, aim to balance the safeguarding of lenders with maintaining their global market interests.

Effective from January 1, 2026, these rules follow a response to feedback indicating the original proposals were too conservative and costly. This move comes after the 2007-2009 global banking crisis led to taxpayer-funded bailouts.

Bank officials, including Prudential Policy Director Phil Evans, expect a minor overall impact on capital requirements. The BoE plans to reduce requirements for small business and infrastructure project loans, and streamline mortgage lending valuations.

Rachel Reeves, the Finance Minister, expressed support, emphasizing that the reforms will provide certainty for financing investment and growth. Alongside BoE Governor Andrew Bailey, Reeves will meet banking CEOs to discuss the changes.

The Federal Reserve is also planning similar reforms for American banks, reducing capital demands following pressure from Wall Street. In contrast, the EU is pushing forward with its Basel rule implementation, set to be in place by January 2025.

(With inputs from agencies.)