Britain's biggest banks need to close a £129bn shortfall in capital requirements by the end of the decade if they are going to satisfy new Bank of England rules by the time they go into effect in 2019, according to a new report out today.
Moody's said Britain's seven largest banks – Royal Bank of Scotland (RBS), Lloyds Banking Group, Barclays, Santander, Standard Chartered, HSBC, plus the Nationwide Building Society – face a £129bn shortfall in meeting the Bank of England's so-called minimum requirement for own funds and eligible liabilities (MREL) – new rules surrounding how much loss-absorbing capital individual institutions need to hold.
But Moody's added that despite the current shortfall, all of the leading UK institutions are "likely meet" the MREL by the end of the decade.
"While we find considerable variation in gross MREL shortfalls, at between zero and £62bn, based on end-2015 disclosures, we expect all of the UK's seven largest banks to meet the upcoming MREL requirements by January 2019 and or 2020, as appropriate," said Laurie Mayers, an associate managing director at Moody's.
"It's likely that existing operating company senior unsecured debt, which ultimately will not be eligible for MREL, will be replaced with eligible holding company liabilities and contractually subordinated debt. If that happens, the current gross £129bn shortfall, representing 2.9 per cent of adjusted tangible banking assets, shrinks to a manageable £54bn net shortfall," Mayers added.
The current shortfalls calculated by Moody's amounted to between zero and just over four percent of adjusted tangible banking assets per bank.
Six of the seven banks have a gross shortfall relative to likely MREL, Moody's said, with Standard Chartered being the only bank with no gross shortfall.