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Finance

Posted By Global Banking and Finance Review

Posted on January 17, 2025

BoE delays Basel bank rules by a year, EU says weighing options

By Iain Withers

LONDON (Reuters) -The Bank of England said on Friday it would delay tougher bank capital rules by a year to January 2027 to get clarity on what the U.S. would do under president Donald Trump, prompting the European Union to say it would also weigh its options.

The standards written by the global Basel Committee are the final set of international reforms designed to make the banking system safer after the 2008 global financial crisis, and are meant to be implemented by member jurisdictions.

The European Union - which currently plans to implement the reforms a year earlier from January 2026 - said it would consider its next steps, but said it was in "everyone's interest" to implement them fully and on time.

"(The EU) is now considering which steps to take on this in light of developments in other jurisdictions, including the US and the UK," a European Commission spokesperson said.

The reforms have faced fierce opposition from U.S. banks, and analysts have said they could be watered down or scrapped under Donald Trump's incoming administration, after the departure of top banking regulator Michael Barr.

Britain's Labour government has been pressuring British regulators to do more to promote growth, with finance minister Rachel Reeves reiterating on Thursday that watchdogs had a key role to play.

Shares in British banks made modest gains after the BoE announcement, with Barclays up 1.9%, Lloyds up 0.7% and HSBC up 0.7%, compared to a 1.2% gain for the wider FTSE 100 index.

Gary Greenwood, an analyst at Shore Capital, said bank share reactions were likely to be muted as the BoE had played down the potential impact of the reforms on bank capital requirements.

The BoE's statement on the Basel 3.1 regulation was published by its regulatory arm the Prudential Regulation Authority (PRA), having made the decision in consultation with Britain's Treasury.

"This allows more time for greater clarity to emerge about plans for its implementation in the United States," the PRA said, adding that it had taken into account competitiveness and growth considerations.

Implementation of the reforms in Britain had previously been delayed last summer by about six months to January 2026.

Bank lobby group UK Finance welcomed the fresh delay.

"Given the cross-border nature of banking, international coordination on capital rules is important," said Simon Hills, director of prudential policy at UK Finance.

Bank of England Deputy Governor Sam Woods said earlier this month that Britain should avoid participating in a "race to the bottom" on financial regulation.

The regulator has already said it will adjust some Basel proposals to the needs of its domestic banking system, including capital requirements for small business lending.

(Reporting by Iain Withers, Additional reporting by William James, Editing by Christina Fincher and Timothy Heritage)

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