The Basel 3.1 reforms are the final part of the internationally
agreed Basel 3 framework. Today's proposals, announced by the
Prudential Regulation Authority (PRA), mark the end of the
post-2008 crisis capital reforms and give the certainty industry
will need to invest for growth.
Chancellor of the Exchequer welcomed the reforms, saying
they would deliver certainty for the banking sector to “finance
investment and growth in the UK” ahead of a joint meeting with
the Bank of England Governor to discuss them with CEOs of the
UK's largest banks and building societies in No11 Downing
Street.
Chancellor of the Exchequer said:
Today marks the end of a long road after the 2008 financial
crisis.
Britain's banks have a vital role to play in helping businesses
to grow, getting infrastructure built and supporting ordinary
peoples' finances.
These reforms will strengthen the resilience of our banking
system and deliver the certainty banks need to finance investment
and growth in the UK.”
Economic Secretary to the Treasury said:
These new rules bring the UK in line with international standards
while supporting the dynamism of the UK economy.
This is a balanced package that promotes the competitiveness of
the UK banking system as well as economic growth.”
The PRA's new rules, including those already announced in
December 2023, have both financial resilience and growth at their
core, reflecting an increased focus on growth and
competitiveness.
Banks and building societies will have to maintain sufficient
capital against risks, such as loans not being repaid, to protect
people and businesses from the fallout from a 2008-style
financial crash.
The PRA's near-final rules also include a number of changes from
its initial proposals that will support economic growth and
competitiveness. The key changes made by the PRA will:
- Lower its proposed capital requirements for lending to small
and medium-sized businesses (SMEs). This will mean lending to
SMEs continues to be supported, helping to deliver the
government's ambition to make the UK the best place in the world
to start and grow a business.
- Lower its proposed capital requirements for infrastructure
projects, ensuring no increase on current requirements and
supporting the UK's transition to net zero.
- Streamline the approach banks can take to mortgage lending,
by simplifying the approach to valuing residential
property.
The PRA's new rules will come into force on 1 January 2026,
providing the banking sector with the certainty it needs to
prepare for the new requirements. The Treasury will repeal the
legislation required for the PRA to move forward with the Basel
3.1 package.
The PRA published proposals for a simpler regime for smaller
firms alongside its near-final Basel 3.1 rules. This regime will
make it easier for smaller banks and building societies to lend
by minimising the number of calculations they are required to
make and introducing a single capital buffer.
