The Prudential Regulation Authority has eased liquidity rules for mid-sized banks, in a move designed to “make it easier for mid-sized banks to scale up in the mortgage market”.
The Bank of England body, amid a series of papers today, has raised the threshold at which smaller banks have to hold emergency funding that would ensure they can wind down without taxpayer support if they fail.
These banks will only become subject to that emergency funding once their assets total between £25bn and £40bn under ‘Minimum Requirement for own funds and Eligible Liabilities’, or MREL, rules.
Previously, the threshold was between £15bn and £25bn.
MREL funding is made up of a mix of loss-absorbing debt and equity, and is one of the financial safety nets introduced in the wake of the financial crisis that came into force in 2016.
The regulator says that from now MREL thresholds will be reviewed, every three years starting in 2028, to reflect wider economic growth.
The body will also review how mid-tier banks calculate their internal ratings-based approach, which sets credit risk capital requirements for these lenders.
Prudential Regulation Authority chief executive Sam Woods (pictured) says: “Today’s announcements will give certainty to firms of all sizes about the future capital framework, bring in a simpler regime for smaller banks, make it easier for mid-sized banks to scale up in the mortgage market, and allow an extra year for part of the implementation of new investment banking rules.”
The changes come as the Chancellor said that banks and City firms would be freed from red tape to allow them to push for growth at a summit of business leaders in Leeds this morning.
Rachel Reeves said: “We’re providing certainty for banks operating in the UK, and ensuring that UK banks have the ability to compete internationally and drive economic growth.”
Paragon Banking Group welcomed the move.
The lender’s chief executive Nigel Terrington says the move “provides many mid-tier banks with the capacity to grow without the risk of being drawn into a regime intended for systemically important firms.
Terrington adds: “We also welcome the Prudential Regulation Authority’s decision to review the internal ratings-based process.
“This needs to be streamlined and accelerated to enable mid-tier banks to compete more actively in the mortgage market, supporting growth and choice for homeowners and landlords.”
