Bailey Says U.K. Regulator Wants Limits on Foreign Bank Branches

Branches of foreign banks opening in the U.K. won’t be able to take retail deposits unless they convince the regulator they can be easily wound down in a crisis, said Andrew Bailey, the U.K.’s top banking supervisor.

Branches from banks based outside the European Union “should stick to straightforward wholesale banking, of the type that supports world trade and capital flows,” Bailey, the chief executive officer of the Prudential Regulation Authority, told an audience of banking executives in London today. “Resolution will be a key deciding factor in the PRA’s judgements.”

The U.K. government said this week that branches of Chinese banks would be approved for business in London. Chancellor of the Exchequer George Osborne said the PRA will start talks with Chinese banks later this year.

“Our stance is sensibly cautious, but not I think restrictive,” said Bailey, deputy governor for prudential regulation at the Bank of England. “It is a general policy, not a China policy, and it is consistent with promoting the benefits of an open world economy.”

Regulators around the world have encouraged banks to open subsidiaries rather branches since the financial crisis because they have to comply with tougher capital and liquidity rules. Branches are supervised by the regulator of the home country of their parent bank.

“We do not wish to see non-EEA branches undertaking critical retail banking functions -- like taking deposits -- beyond de minimis levels unless there is some good reason and importantly there is a very high level of assurance on resolution,” Bailey said.

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