UK banks “already very well capitalised”, broker backs capital reform proposals Proactive uses images sourced from Shutterstock
Shore Capital has backed the Bank of England’s proposed bank-capital reforms, saying they should make the regime more flexible without materially cutting sector-wide requirements.
The broker noted the Financial Policy Committee still sees system-wide capital of around 13% of risk-weighted assets, or roughly 11% CET1, as appropriate.
The proposed changes include making O-SII buffers explicitly releasable in stress, removing the Countercyclical Leverage Buffer, cutting the minimum leverage ratio from 3.25% to 3.0% and recalibrating parts of the leverage framework.
Shore Capital said UK banks are already “very well capitalised,” with large lenders generating surplus capital and returning cash through dividends and buybacks.
The issue, analyst Gary Greenwood argued, is not that banks lack capital, but that they are reluctant to use buffers because of possible distribution restrictions, market reaction and uncertainty over rebuilding capital after a shock.
“Overall, we support the move towards a simpler and more flexible capital regime, but we are not advocates of meaningful reductions in overall industry capital levels,” Shore Capital said.
The Bank of England review covers the UK bank capital framework, including capital buffers, leverage requirements and measures aimed at improving banks’ ability to support customers during periods of stress.