Press release: New rules for banks to deliver financial stability and investment
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 Rachel Reeves
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 Rachel Reeves
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 Tulip Siddiq
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.