# Be simple in bank capital, Bank of England tells global regulators
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-04-26
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: Bank of England Deputy Governor Proposes Radical
Meta Description: Bank of England Deputy Governor Sam Woods suggests a more streamlined system for bank capital buffers to encourage lending during downturns, as global
URL: https://financedigest.com/be-simple-in-bank-capital-bank-of-england-tells-global-regulatorshtml

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By Huw Jones

LONDON (Reuters) – The complex system of bank capital buffers could be radically simplified to encourage banks to keep lending in a downturn, Bank of England (BoE) Deputy Governor Sam Woods said on Tuesday.

As economies went into a tailspin during lockdowns to fight COVID-19 in 2020, banks were leery about tapping their buffers to keep lending, fearing a backlash from investors worried about fresh capital raising.

The Basel Committee of [global regulators](https://www.financedigest.com/global-stock-markets-slip-on-inflation-tax-regulation-worries.html "Global stock markets slip on inflation, tax, regulation worries"), whose members include the BoE, is looking at how to make buffers more usable after what happened during the pandemic.

Woods proposed a “Bufferati”, or more streamlined system for Basel to consider.

My simple framework revolves around a single, releasable buffer of common equity, sitting above a low minimum requirement,” Woods told the [City Week event in London](https://www.financedigest.com/4-for-the-price-of-1-what-you-can-buy-in-the-uks-top-northern-cities-for-the-price-of-a-london-pad.html "4 for the price of 1: What you can buy in the UK’s top northern cities for the price of a London pad").

“This would be radically different from the current regime,” Woods said. Regular [stress testing](https://www.financedigest.com/what-to-make-of-the-headlines-brexit-and-bank-of-england-policy-eba-bank-stress-tests.html "What to make of the headlines? Brexit and Bank of England policy, EBA bank stress tests") of lenders would determine capital levels.

The prospect of countries getting on board is remote in the short to medium term, given the years it takes to make even incremental changes to Basel’s bank capital rules, which Britain is committed to applying as a [global financial centre](https://www.financedigest.com/new-york-catches-up-with-london-to-head-citys-global-centres-survey.html "New York catches up with London to head City’s global centres survey").

Basel’s latest batch of new rules are already being [delayed by two years to 2023 in Britain](https://www.financedigest.com/britain-delays-major-rail-project-hs2-as-costs-soar-again.html "Britain delays major rail project HS2 as costs soar again") and Europe.

At the very least this might amuse my colleagues on the Basel Committee as they toil away on the serious [business of evaluating the current model,”](https://www.financedigest.com/learning-from-the-disrupters-how-finance-brands-can-build-transformative-business-models.html "Learning from the disrupters – how finance brands can build transformative business models") Woods said.

Regulators would [work out for each bank](https://www.financedigest.com/boes-bailey-says-bank-reforms-worked-but-questions-about-liquidity-buffers.html "BoE’s Bailey says bank reforms worked but questions about liquidity buffers") its capital requirements, based on analysis of risks on the bank’s books, and the general macro economic climate, he said.

All thresholds, triggers and cliff-edges – a reference to consequences such as an automatic halt to dividend payments if a buffer falls below a certain level – could be replaced with a judgement-based “ladder of intervention”, he added.

(Reporting by Huw Jones; Editing by Catherine Evans and Mark Potter)


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