PRA steps up bank capital battle as it consults on tough EU rules


The Prudential Regulation Authority is consulting on new EU capital requirements as it turns up the heat on banks’ capital positions.

The new CRDIV rules chiefly aim to improve the quality of assets held by banks, building societies and investment firms in their capital requirements. The new laws will also introduce Basel III capital rules into EU law.

The PRA has recently been locked in battle with UK banks such as Barclays and Nationwide over meeting 3 per cent leverage ratios ahead of schedule.

Earlier this year it published a list of banks with capital shortfalls amounting to a £25bn capital black hole in the sector.

Business secretary Vince Cable hit out at the “capital Taliban” at the Bank of England limiting lending and choking off growth.

The PRA says the UK capital regime for the banking sector and investment firms will remain broadly the same under CRDIV but there are a number of important changes which will affect UK firms.

CRDIV places greater emphasis on the highest quality of capital, known as core equity tier 1, which the PRA supports.

The FCA says there will be nearly 2,500 investment firms affected by the rules changes including 105 financial adviser firms.

Despite the EU voting to cap bankers’ bonuses, the PRA said the changes are not “substantive” and it would follow guidance given by the parliamentary commission on banking standards. The commission opposed the bonus cap and opted for 10 year deferred payments and significant clawback powers.

PRA chief executive Andrew Bailey says: “Well capitalised and resilient firms are crucial for ensuring financial stability and supporting UK growth.

“The PRA has already acted to increase both the amount and quality of capital held by firms, reflecting our determination to improve the stability of UK firms after the crisis. This has put UK firms in a good position to meet the new requirements whilst continuing to provide banking services and support lending to the real economy.”