Bank of England Considers Subsidiary Rule Changes for International Banks

After the failure of Silicon Valley Bank, the Bank of England has reviewed its rules determining when international banks must set up a subsidiary.

Sam Woods said that Silicon Valley Bank was a UK branch for 10 years before the regulators required it to subsidiarise. Woods made his remarks in advance during the City Banquet held at Mansion House. The regulators are now worried that they might miss another branch of a bank that provides similar deposit and transactional service to small and midsized UK companies.

He said, “For this reason, we’re thinking about our branching approach.” It’s not about fundamental change, but about identifying areas that could be improved.

Woods said that the vast majority branch business will not be affected.

More than 150 branches in the UK have assets of about £6.3 trillion. Woods said that it is more expensive for international banks than operating as branches to create separate capitalized subsidiaries.

Woods stated that they “significantly reduce barriers to international banking, are important for competition and part of the City’s lifeblood”, Woods. “That’s not going to be changing.”

Woods’s speech was a wide-ranging one. He also touched on the latest reforms to capital requirements, known as Basel III. They are tied to a global overhaul that began more than ten years ago to respond to the 2008 financial crisis.

In July, top US regulators revealed their plans to implement the new rules. Executives from JPMorgan Chase & Co., and Citigroup Inc. reacted against the proposed changes.

Woods, on the other hand, said that he does not expect reforms in Britain “to make a significant difference in aggregate capital levels.”

Nikhil Rathi said in prepared remarks that the UK’s Financial Conduct Authority was beginning to see more banks offer higher savings rates to customers after the agency had warned it would take ‘robust action’ against companies who didn’t.

Rathi stated that “we are beginning to see improvements” – better products, communication and customer journeys. There is also a better competition in deposit rates and a faster rate increase pass through. “We are being proportionate and focusing on the worst harms.”

Nicholas Lyons, Lord Mayor of London, a veteran financial executive, made a speech Monday encouraging government officials, regulators, and the financial sector to develop a program for secondment that would encourage collaboration among the three parties. In most cases, secondment programs allow companies to send an employee to work temporarily for another company as a means to improve relationships and share knowledge.

Lyons said that regulators should also encourage more pensions, such as infrastructure, real estate and private debt, to invest in non-listed asset classes, like private debt and equity, to ensure UK savers get better returns.

Lyons stated that “a renewed partnership among regulators, the government, and industry can unlock investment.”