UK Banks Push for Easier Capital Rules Ahead of Treasury Meeting

Major UK banks, including Barclays, HSBC, Lloyds, NatWest, Nationwide, and Santander, are preparing to lobby Chancellor John Healey for looser capital requirements ahead of a critical Treasury meeting on Tuesday. The lenders argue that current regulations are squeezing their lending capacity and putting them at a disadvantage against global competitors. They are seeking further reductions in capital requirements, including a lower countercyclical buffer, which is currently set at 2%. The Bank of England has already eased some rules, reducing the overall tier one capital target from 14% to 13% of risk-adjusted assets.

Building societies are also pushing for regulatory relief, advocating for a simplified Basel III regime and revisions to mortgage capital rules. They claim that existing requirements are excessively punitive, with one example citing the need to hold capital against 980 years of mortgage arrears. The debate comes amid broader uncertainty over potential tax changes ahead of the Budget on October 28.

Dame Meg Hillier, chair of the Treasury select committee, acknowledges the lenders' arguments but remains cautious about relaxing prudential standards, citing the lessons of the financial crisis. She suggests that targeted easing, especially for building societies and mutuals, could support extra lending, including to first-time homebuyers. Hillier also warns against a wide range of small revenue-raising measures, emphasizing the need for a stable policy backdrop.

The Treasury has declined to comment on the matter, stating that decisions on tax are for the chancellor to announce at fiscal events. The upcoming Budget is expected to be a holding-pattern event, with the government balancing financial stability against growth considerations.