U.K. Banking System Gradually Strengthening, FSA’s Bailey Says

Lenders are becoming stronger following calls from the U.K. financial watchdog to raise capital, said Andrew Bailey, head of banking supervision at the Financial Services Authority.

Regulators “can see a picture of gradually improving resilience in the banking system,” Bailey said in prepared remarks for a speech in Scotland today. Lending growth has remained slow, Bailey said, despite the FSA relaxing guidance on how banks calculate liquidity buffers in June.

“It is too soon to assess the impact of all these changes on the resilience of the financial system and on credit creation,” Bailey said. “We will monitor the results of these actions very carefully, and we will be prepared to amend our judgments in the light of experience.”

The FSA has said it would include Bank of England liquidity measures in calculations of banks’ liquid asset buffers giving lenders more room to dip to into reserves. U.K. lenders have built up liquidity buffers worth around 500 billion pounds ($807 billion) since the 2008 financial crisis, Andy Haldane, the central bank’s director for financial stability, said in June.

The Prudential Regulatory Authority will be responsible for bank oversight next year when the financial watchdog is disbanded. The PRA will allow big banks to fail where the cost to the wider financial system is limited, Bailey, who is CEO-elect of the agency, said.

“I regard having the capacity to resolve failed large banks, including the largest, as the Holy Grail of resolution,” Bailey said.

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