The Bank of England is considering plans to force more international banks to set up subsidiaries in the UK.
According to the Financial Times, the Bank could reduce the threshold at which foreign banks have to set up subsidiaries which have their own capital and liquidity.
Unlike branches, subsidies are able to be seized by regulators in the event of a collapse. This makes it much simpler for regulators to take decisive action in crises.
However, subsidiaries are more expensive to maintain than branches, meaning any possible move is likely to be unpopular with international lenders. It may also conflict with the regulator’s new mandate to consider international competitiveness.
Currently the Bank’s supervision suggests banks with £100m or more in retail deposits and “small company transactional deposits” should establish a subsidiary.
If a bank has more than 5,000 retail and small company customers, then it might also be required to set up a subsidiary.
As of March, there were 150 international bank branches, holding around £6.3trn in assets.
The plans are being discussed as part of a review of the collapse of Silicon Valley Bank (SVB) earlier this year.
SVB’s UK operation became a subsidiary six months before its US-based parent collapsed. This allowed regulators to step in and broker a £1 sale to HSBC when it imploded.
At the time, Sam Woods – head of the Prudential Regulation Authority – said SVB’s failure “raises a legitimate question on whether the threshold at which firms subsidiarise is exactly in the right place or merits any adjustment.”
A Bank of England spokesperson said: “The UK is a very large host to branches of international banks, and that is a necessary condition of running a large financial centre.”
The Treasury was contacted for comment.