Top regulator Andrew Bailey writes to challenger banks over Basel Committee buy-to-let capital requirement proposals

Lauren Fedor
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PRA chief executive Andrew Bailey implied capital requirements may go down, not up, for challenger banks (Source: Getty)

A top City regulator has taken new steps to reassure Britain’s challenger banks about capital requirements ahead of a meeting today between bank bosses and Treasury officials.

In a letter sent to challenger bank bosses today, Prudential Regulation Authority (PRA) chief executive Andrew Bailey said that smaller lenders should not be overly worried about the implications of a consultation paper published by the international Basel Committee last week.

The paper proposed changes to capital requirements that would compel small banks offering buy-to-let (BLT) mortgages to hold nearly 2,000 per cent more money than bigger lenders.

“The UK does not expect forthcoming adjustments to risk weighted assets at Basel to add to system-wide capital requirements,” Bailey, who is also deputy governor of the Bank of England, wrote in the letter. “Given changes to model-based approaches, this may mean capital requirements for banks and building societies using the standardised approach will need to be adjusted downwards in the final calibrations.”

Sky News first reported that Bailey sent the letter, but banking sources later confirmed to City A.M. that they had received it.

Ten challenger bank bosses are set to meet Charles Roxburgh, the Treasury’s director of financial services, tomorrow. One source told City A.M. over the weekend that while the banks will ask for a permanent extension of the government’s Funding for Lending (FLS) scheme, talks are more likely to focus on the capital requirements proposed by the Basel Committee.

The lenders, including OneSavings Bank and Aldermore, have been at loggerheads with the Treasury since chancellor George Osborne said in July that the government would scrap the bank levy in favour of a new corporation tax surcharge that would apply to large and small lenders.

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