PRA simplifies mid-sized banking rules to allow the mortgage market to “expand” – Mortgage Strategy
Prudent regulators have eased liquidity rules for mid-sized banks, a move aimed at “making it easier for mid-sized banks to scale in the mortgage market”.
In a series of papers today, the Bank of England institutions raise the threshold for smaller banks to have emergency funds to ensure that if they fail, they can end without taxpayer support.
These banks have only a total of between £25 billion and £40 billion under the “minimum requirements for owned funds and qualifying liability” or the “minimum requirements” stipulated by MREL, and only an emergency fund of between £25 billion and £40 billion.
Previously, the threshold was between £15 billion and £25 billion.
MREL funds are composed of lost debt and equity, and are one of the financial safety nets introduced after the financial crisis took effect in 2016.
Regulators say that starting now, the MREL threshold will be reviewed every three years from 2028 to reflect broader economic growth.
The agency will also review how mid-level banks calculate their internal rating-based approaches, which set credit risk capital requirements for these lenders.
Sam Woods, CEO of the Prudent Regulator, said: “Today’s announcement will identify companies of all sizes about the future capital framework, bringing simpler regimes for smaller banks, making it easier for medium-sized banks to scale in the mortgage market and implementing an additional year for the new investment banking rules.”
The minister said banks and city companies will be released from the Traditional Chinese Tape Festival to allow them to drive growth at the Business Leaders Summit in Leeds this morning.
Rachel Reeves said: “We provide certainty for banks operating in the UK and ensure that UK banks have the ability to compete internationally and drive economic growth.”
Paragon Bank Group welcomes the move.
The move “provides many middle-level banks with the ability to grow without risking falling into a regime targeting important companies on the system,” said Nigel Terrington, lender CEO.
Terrington added: “We also welcome the decision of Prudential regulatory authorities to review the internal rating-based process.
“This needs to be simplified and accelerated to enable mid-level banks to compete more actively in the mortgage market, thus providing growth and options for homeowners and landlords.”
