Bailey: UK banking regime to balance resilience, growth, innovation
David Bailey, Deputy Governor for Prudential Regulation at the Bank of England, outlined the Prudential Regulation Authority's (PRA) pipeline of reforms for bank capital and liquidity. The reforms aim to ensure the framework supports resilience, enables growth, and allows for responsible innovation.
Capital requirements cut to 13 percent
The Financial Policy Committee (FPC) has reduced its benchmark assessment of Tier 1 capital requirements from 14 percent to 13 percent of risk-weighted assets, effective from 2027 with Basel 3.1 implementation.
This adjustment reflects changes in the financial system, including reduced systemic importance for some banks and improved risk measurement.
The PRA is focusing on three priority areas: enhancing buffer usability to encourage drawdown in stress, reviewing the leverage ratio as it has become a binding constraint for more firms, and ensuring coherence among domestic capital requirements like the Countercyclical Capital Buffer and Pillar 2A.
Extensive stakeholder feedback is being reviewed, with next steps to be outlined in the July Financial Stability Report.
From post-crisis resilience to proportionality
The PRA's work builds on over a decade of post-crisis reforms, including the comprehensive overhaul of capital and liquidity frameworks and the implementation of Basel 3.1 standards.
The UK also introduced the ring-fencing regime to protect essential retail services.
Having established resilience, the focus has shifted to refining the prudential framework to be more efficient, proportionate, and supportive of innovation.
This aligns with the PRA's secondary objectives to facilitate competition, competitiveness, and growth, ensuring a resilient financial system underpins long-term economic growth.
Balancing act for future stability
The speech clearly articulates the PRA's evolving mandate, moving beyond post-crisis resilience to a more nuanced approach.
This shift towards proportionality and competitiveness is crucial for the UK's financial sector, but the challenge lies in implementing these reforms without compromising the hard-won stability.
The detailed pipeline of work suggests a proactive, rather than reactive, stance to regulatory evolution.