More changes and delays to Basel III capital rules for banks are anticipated in both the UK and the EU on the back of the Bank of England\u2019s decision to further postpone the implementation of the regime in the UK. Regulators are waiting for clarity on the approach the Trump administration will take on requirements for US lenders.<\/p>\n
The BoE\u2019s Prudential Regulation Authority on Friday said it would delay the implementation of Basel III rules by one year to January 2027, \u201cgiven the current uncertainty around the timing of implementation of the Basel 3.1 standards in the US, and taking into account competitiveness and growth considerations\u201d.\u00a0<\/p>\n
The Federal Reserve in September announced plans to reduce Tier 1 capital requirements<\/a> under its own Basel III regime \u2014 dubbed Basel Endgame \u2014 for US globally systemically important banks to a 9 per cent increase, from the 19 per cent initially proposed in 2023, after intense lobbying from banks.\u00a0<\/p>\n While the new capital revisions are yet to be finalised by US regulators, requirements may well be further watered down by the incoming administration of Donald Trump, who will be sworn in as US president on Monday.\u00a0<\/p>\n Earlier this month, Federal Reserve vice-chair for supervision Michael Barr, who led the Basel Endgame efforts at the Fed, announced he would step down<\/a> by the end of next month to avoid disputes between the new Trump administration and the Fed.<\/p>\n Experts are not ruling out further delays in the implementation of the regime on the back of any moves in the US under the new Trump presidency.\u00a0<\/p>\n The EU may respond by delaying its regime further, according to Monsur Hussain, head of financial institutions research at Fitch Ratings, even as the wheels of implementation have begun turning within the bloc.\u00a0<\/p>\n \u201cWhilst the EU is talking about \u2018tweaks\u2019 to its regime, the bulk of the Capital Requirements Regulation III provisions [that implement the Basel III framework in the EU] already took effect from January 1 this year, leaving it further out of line with the UK and US on implementation timelines,\u201d said Steven Hall, partner at KPMG.\u00a0<\/p>\n In an emailed statement to Reuters, the European Commission on Friday said it was considering its options after the BoE\u2019s announcement.\u00a0<\/p>\n Meanwhile in the UK, it remains to be seen whether any further shift in approach to implementation in the US under the new Trump presidency will have any influence on the PRA\u2019s previously published approach to Basel 3.1, said Timothy Fosh, partner at Eversheds Sutherland.\u00a0<\/p>\n BoE deputy governor Sam Woods said in a September interview that the PRA \u201cwould have some thinking to do\u201d if the US doesn\u2019t implement the Basel standards.<\/p>\n Regulatory divergence between major global financial centres is a focus for internationally active banks in particular, noted Richard Barnes, senior director in S&P Global Ratings\u2019 financial services ratings team.\u00a0<\/p>\n Such a divergence would have a negative impact on global financial stability, according to Finance Watch, a non-profit organisation.\u00a0<\/p>\n \u201cIt reflects a worrying trend between jurisdictions waiting to align with weaker US \u2018standards\u2019, driven by industry lobbying and misguided competitiveness rhetoric,\u201d said Thierry Philipponnat, the organisation\u2019s chief economist.\u00a0<\/p>\n \u201cIf the UK and EU follow this path, it could undermine the hard-won progress on financial stability achieved post-2008. The current \u2018race to the bottom\u2019 in banking regulation will only leave financial systems more vulnerable to future crises.\u201d<\/p>\n 2030 implementation on track<\/p>\n While the BoE\u2019s Friday announcement is seen as a positive for UK banks in the short term, Hussain notes that the full implementation of the UK\u2019s Basel III regime currently remains on track to be completed by June 2030.\u00a0<\/p>\n \u201cIt seems as though the final end goal of 2030 still stands, which will therefore limit any kind of significant benefits that the UK banks would obtain from [the Friday delay], since they still have to make sure that the implementation timetable is orderly,\u201d he added.\u00a0<\/p>\n