BOE Won’t Shy Away From Conflict on New Bank Rules, Bailey Says

Bank of England Deputy Governor Andrew Bailey said regulators are prepared to clash with banks over any resistance to tougher capital rules.

“We don’t believe that putting more capital into the system is detrimental,” Bailey, chief executive officer of the Prudential Regulation Authority, told Bloomberg Television’s Guy Johnson in an interview broadcast today. “A better-capitalized system, a more stable system, is good for financial stability, will be good for the banking system and good for the economy.”

The PRA, a unit of the Bank of England, said on Aug. 2 that British banks must hold better quality capital against risks not captured under Basel rules. The regulator is already imposing a 3 percent leverage ratio, forcing lenders to hold 3 pounds of equity for every 100 pounds of assets, to make the financial system more resilient and avoid future bailouts.

Barclays Plc CEO Antony Jenkins is among bank executives that have initially warned that tougher capital rules may force British lenders to cut lending, while U.K. Business Secretary Vince Cable has referred to the BOE as a “capital Taliban” for imposing additional burdens on the system.

That view is opposed by the BOE’s Financial Policy Committee, of which Bailey is a member. The panel, set up in the wake of the financial crisis, monitors the banking system for risks and is pushing lenders to boost their resilience.

Bailey said in the interview in London that it’s “probably not surprising” that “putting more loss absorbency into the system is going to raise a degree of conflict.”

Regulators “haven’t taken a deliberate decision to be aggressive,” he said. Still, “there will be times when the application of judgment -- our judgment is based on our interpretation of the public interest -- is perceived to come into conflict with interests of other parties.”

The FPC holds its next meeting on Sept. 18 and will release a statement on its deliberations on Sept. 26.

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