Lobbying by banks against new rules condemned by Bank of England
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In order to help prevent a repeat of the mass bailout of struggling banks in the UK, new legislation is set to be brought in by the Bank of England by the end of the year. Deputy Governor of the Bank Paul Tucker, who has been given financial responsibility, is one of a number of people who believe that new rules on liquidity need to be enforced as soon as possible.
As part of wider global legislation governing banks and building societies which must be implemented by 2018, all financial institutions must comply with new liquidity laws. The Bank is hoping to bring the new rules into place by the end of the year, something which a handful of major banking chains including Barclays and Nationwide have complained about.
Greater leverage needed
Perhaps the main reason why reforms are being proposed by the Bank, in tandem with City regulators is over concerns about the level of equity in relation to debt which the majority of banks carry. In the case of many banks, they have a ratio of debt to equity of less than 97% to just 3%. This could leave them vulnerable to collapse in the event of heavy losses.
As the examples of RBS and HBOS show, excessive losses that wipe out the amount of equity they hold can either lead them to collapsing entirely or asking for a bailout. In both cases, a bailout happened at the expense of the taxpayer, and these new rules are designed to ensure that a repeat doesn’t occur, but some banks are lobbying against these new rules.
“UK banks are described by the ratings agency as having been “sufficiently well capitalised to absorb expected losses from both our central and adverse stress scenarios”.
“The UK’s services sector has also been growing in recent weeks, indicating the pace of the recovery could be set to step up a gear in the coming months.” Commented a spokesperson from City index
Claiming that the Bank are intent on fast-tracking the new rules, the likes of Barclays have claimed that should they come into effect, it might harm their ability to lend money to customers for mortgages and personal loans. They even claimed that as early as this year, they may be forced to bring in restrictions for customers, something that may sound a little petulant to their critics.
Outgoing Governor of the Bank of England Sir Mervyn King claimed that banks had actively lobbied the Treasury and even No. 10 in order to try and at least postpone the changes until 2015. This in itself gained condemnation from the Bank and from financial experts who claimed that banks were trying to get away with continually acting irresponsibly.
If the banking sector as a whole is to regain trust and wants to avoid a repeat scenario of what happened a few years back, then complying with the new laws is essential. Doing so may seem painful at first, but guarding against heavy losses is a must, especially as the global economy is not out of the woods just yet.