As predicted, the attacks on the financial regulators illustrate how the attempt to set higher capital requirements ultimately becomes a race for the bottom. For example, it is subjected to the 'level-playing field' argument where the capital requirements of a different country preempt the higher capital requirements sought by the national financial regulator.
UK bank regulators are coming under attack on two fronts, with both investors and international peers chiding the Bank of England and Financial Services Authority over their aggressive stance on bank capital.
Concerns have mounted as a proposal by a Bank of England adviser, calling for the doubling of new internationally agreed capital ratios, appears to have gained ground.
... Basel III rules, due to be phased in as the global standard for bank capital by 2019, have set the core tier one capital ratio – the key measure of financial strength – at 7 per cent of risk-weighted assets.
Regulators are still thrashing out how much more than that SIFIs must hold. The recent Bank of England paper called for an overall 15-20 per cent ratio.
The sense of a growing divide between regulators in the UK and Switzerland on the one hand, and the US and much of continental Europe on the other, is alarming investors, sparking fears that UK banks will be disadvantaged or forced abroad.
“My view is the UK is going mad,” said one London hedge fund investor with large bank
shareholdings. “Regulators are basically saying: ‘We can’t police the banks, so let’s build a massive wall to protect ourselves instead’.”
Davide Serra, founding partner of asset management firm Algebris, said: “Higher capital will just lead to higher mortgage and credit card costs for everyone.”
... Big UK banks, such as HSBC, Standard Chartered and Barclays, that came through the crisis relatively unscathed are angry that they face the prospect of high capital demands set in the light of rivals’ failure.
HSBC executives have privately urged some of the bank’s leading investors to voice their unease to regulators, according to people familiar with the situation.
The vitriolic rhetoric comes as concern grows that the UK is falling out of line with most international peers on the issue of SIFI capital levels.
US regulatory officials are growing frustrated with the pace and direction of negotiations on the still outstanding capital issues as well as on the requirements for holding liquid reserves.
“Right now, this is a confusing, unresolved muck,” said one senior figure in the US administration, adding that he was determined US banks would not be required to go much beyond the Basel III 7 per cent ratio.
... Officials say the Bank and FSA are aware that the UK needs to maintain a level playing field, particularly with rivals in continental Europe.