UK Banks Face £22 Billion Capital Gap Due to Software Rules

Britain's largest lenders are pushing policymakers to reconsider capital rules that they claim give major US banks an unfair competitive advantage. A study commissioned by the UK banking industry argues that stricter software asset deductions in Britain contribute to this gap, which is expected to widen further due to planned deregulation in Washington.

The study found that top British banks have average capital requirements of 11.8% versus 10.6% for their US peers, mainly because of how software investments are treated under regulatory rules. After factoring in the expected easing of US regulations, UK banks would face like-for-like capital requirements 1.9 percentage points higher than their US rivals.

The estimated cost to British lenders is significant: about £22.5 billion in extra common equity tier 1 capital. This disparity could impact lending capacity and technology investment. The study's findings are likely to fuel ongoing debates between the Bank of England, UK government officials, and industry figures.