Britain Urges Simpler Bank Rules as EU Officials Seek Similar Reforms

The Bank of England is set to rein in regulation on major lenders, aiming to lighten the administrative load faced by banks in the City and beyond. In a move reflecting changing priorities post-Brexit, the Bank is preparing to streamline requirements and give itself greater leeway in managing the capital framework for financial institutions.

Across the Channel, French officials are calling on Brussels to follow Britain’s lead. The Banque de France and other European regulators have pressed the European Central Bank to merge overlapping capital requirements, known as Minimum Requirement for own Funds and Eligible Liabilities (MREL) and Total Loss-Absorption Capacity (TLAC). The rationale is to maintain robust reserves for crises while allowing banks the flexibility to increase lending to households and businesses.

Officials noted that the United States already benefits from a more straightforward regulatory regime and suggested that a simpler structure for loss-absorbing capacity would be advantageous for both regulators and market participants. These proposals reflect the regulatory changes underway in Britain, due to take effect in January.

As part of the drive to stimulate economic growth without additional government spending or tax cuts, Chancellor Rachel Reeves has prioritised reducing regulatory barriers. Proposals on the table include lowering the capital requirements for smaller banks on residential mortgages, potentially delivering greater choice and lower interest rates for consumers. Smaller institutions will also be relieved of the obligation to hold buffers to offset their collapse, building on lessons learned from the recent failure of Silicon Valley Bank.

Industry groups such as UK Finance have lobbied for further simplification, calling for the abolition of the bank levy and the corporation tax surcharge, costs which total roughly £2.5 billion annually for lenders. Simultaneously, the Treasury is set to review the ring-fencing regime that separates retail banking from investment operations, seeking to unleash more lending into the wider economy while safeguarding the system’s stability.

While political leadership has criticised the regulatory status quo as a constraint on business, Bank of England Governor Andrew Bailey responded with a note of caution. He emphasised that financial stability remains paramount, stating, “We can’t compromise on basic financial stability. That would be my overall message.” The ongoing debate will likely shape the banking landscape across the UK and Europe in the years ahead.