U.K. banks will have to comply with tougher capital rules five years ahead of an international timetable as the Bank of England seeks to bolster lenders’ resilience to crises.
The largest U.K. banks and building societies will have to meet capital requirements set by the Basel Committee on Banking Supervision by Jan. 1, 2014, the Prudential Regulation Authority, the arm of the British central bank that supervises the largest finance firms, said in a statement today. The requirements include a debt limit, known as a leverage ratio, that forces lenders to have equity equal to 3 percent of their assets.
“These decisions will enhance the stability of the financial sector and strengthen the capital regime in the U.K.,” the regulator said.
The largest global banks cut the shortfall in the reserves they’ll need to meet Basel capital rules by 82.9 billion euros ($113 billion) in the second half of 2012, leaving a gap of 115 billion euros, according to Basel committee data published in September. The biggest lenders in Europe account for 70.4 billion euros of the shortfall.
The requirements, known as Basel III, were published by international regulators in 2010 in a bid to close loopholes and remedy weaknesses exposed by the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. in 2008.
The rules, which are scheduled to be phased in by 2019, more than triple the core capital, such as retained earnings and shareholders equity, that banks must have to absorb losses. It also toughens rules on what can count as capital, and on how banks should calculate whether they meet the rules.