City regulators are pushing ahead with new liquidity rules despite objections from Barclays and Nationwide. They believe these changes need to happen quickly, ideally before the global 2018 deadline.
Paul Tucker, the deputy governor of the Bank of England who oversees financial stability, has called the banks’ opposition “totally unacceptable.” He insists the regulations must be implemented swiftly to reduce the risk in UK banks, which are highly leveraged.
Nationwide and Barclays have argued against the proposals, saying the rapid implementation could harm their financial positions and reduce their capacity to lend. They have tried to delay the regulations until 2015 by appealing to the Treasury and Number 10, highlighting their fears of being forced to cut back on lending to households and businesses.
According to a ratings agency, UK banks are well-capitalized to handle expected losses, even under severe stress scenarios. Additionally, recent growth in the UK’s services sector suggests the recovery might pick up pace soon.
The controversy started when US regulators announced they would enforce the new rules—setting borrowing limits and increasing reserve requirements—well before the international deadline set by the Bank for International Settlements. This move upset many in the business community, with concerns that the stricter lending ratio would further tighten US bank leverage.
Federal Reserve Governor Dan Tarullo noted that the Basel III leverage ratio seems too low to effectively balance risk-weighted capital measures. Meanwhile, banks fear that being pushed to secure capital levels and lending could restrict their operations.
Andrew Tyrie, head of the Treasury select committee, expressed concerns over banks potentially using their power for personal gain. Andrew Bailey, head of the Prudential Regulation Authority (PRA), acknowledged that banks had approached George Osborne, but stressed that the PRA’s independence remains intact.
Former Barclays chief Martin Taylor commented that banks are protesting because the PRA and Bailey are finally enforcing regulations effectively, a move that he believes is long overdue.