Sue Bank of England for new tough rules. City minister suggests

The City minister has told lenders that they can sue the Bank of England for tough financial rules. This is amid concerns that Threadneedle Street’s regulations could put the City at risk.

Andrew Griffith suggested that financial executives could sue the Bank for reforms to the so-called Basel Rules. This would force British lenders to keep back billions more cash than their counterparts in the European Union.

These comments indicate growing tensions between the Bank (and the Government), which is trying to make London more competitive after concerns about London’s role as a global financial centre being diminished.

After a concerted protest from Andrew Bailey, Rishi Sunak, Prime Minister, dropped plans to have a right of overrule Bank decisions.

This comes just a few months after it was reported that the Bank was preparing for a clash against the Government, as its Prudential Regulation Authority opposed any significant lowering of the rulebook.

The PRA announced in November that banks would be required to comply with almost all the Basel 3.1 rules worldwide, despite Brussels reducing its regulations.

To protect against future crises, the Basel rulebook was created in 2008 following the financial crisis. It dictates bank capital requirements and outlines the rules for banks. In case of severe losses, banks are required to have a cash buffer.

Jacob Rees Mogg, a Conservative backbencher and former business secretary, supported Mr Griffith’s advice for lenders.

He stated that he supported the City minister. The PRA is ineffective and seeks capital growth at the wrong time in the cycle. This is a barrier to global competitiveness. This is further evidenced by its dog-in-the-manger approach to Solvency 2

According to a Treasury source, the minister acknowledged the role of the PRA as an independent regulator and its responsibility for aligning the UK’s banking standards with international best practices.

“As usual, any concerns about the implementation of the regulations should be brought up directly with the independent regulator.”

Bloomberg first reported Griffith’s comments. They come amid growing concern within the Square Mile that the PRA’s strict interpretation of rules will place mid-tier banks in a competitive disadvantage to EU counterparts and limit lending to small companies.

This unusual advice comes after months of tension between the City regulators and the Government.

This led to the PRA , which forced the Government to rescind plans to give ministers power to overrule City regulators. It was a humiliating climbdown for Mr Sunak.

The proposal was met with a rare public backlash by the City’s main regulators. This suggests that they felt empowered after Liz Truss’ chaotic mini budget forced the Bank to stabilize financial markets.

Sam Woods, the Bank’s deputy governor and head of PRA, gave a keynote speech at the annual City Dinner at the Mansion House in an attack on the Government’s plans.

Woods stated that a call-in power would hurt the City of London’s competivity, weaken its international credibility, and create a system where “financial regulations blew much more with political winds”.

The PRA and Financial Conduct Authority were given a secondary goal to increase international competitiveness in line with the Government’s “Big Bang 2.0” drive in the Square Mile.

The central feature of the deregulatory reforms consists of relaxation in the Solvency 2 rulebook. This was implemented by the EU in 2016. It requires UK insurers to have large amounts of cash on their balance sheets.

Ministers have accused the PRA of stalling these reforms.

In November, the regulator opened a consultation about the final package of Basel 3.1 reforms. It is scheduled to last until March. Phil Evans, director of prudential policies at the PRA, stated in December that the proposals would not significantly increase capital requirements.

Andrew Bailey, Governor of Bank of England, defended the UK’s adoption of Basel’s latest rules. He also attacked the EU’s interpretation of the rules, claiming it was “non-compliant” with the global benchmark.

These changes could cause lenders to increase their capital reserves in areas like loans to landlords or green finance.

Both the Bank of England and Treasury declined to comment.

Huw Pill, chief economist at the Bank, stated that inflation is still “unacceptably high” so it should be prepared to raise interest rates once again.

Pill stated that it was crucial to “see the job through” to bring inflation back within the Bank’s target of 2pc, even though policymakers had raised interest rates ten-times to their current level at 4pc.

He was pleased with the recent slowdown of inflation. The price growth rate fell from 11.1pc to January and is now at 10.1pc.

He said that, in contrast to previous statements that the Bank should “guard against too much”, it should also be wary of doing “too much”.

While we have seen some improvement in the last few months as the effect of the energy price rises begins to recede, the UK CPI inflation remains in double digits. He said this in a speech to Warwick University.

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