Bank of England to ease crisis rule for smaller lenders By Reuters

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© Reuters. FILE PHOTO: A general view shows The Bank of England in the City of London financial district in London, Britain, November 5, 2020. REUTERS/John Sibley//File Photo

By Huw Jones

LONDON (Reuters) – Smaller banks will be given time to reach targets for issuing debt to shore up their defences in a crisis, the Bank of England said on Thursday as it seeks to boost competition in a banking sector long dominated by a handful of lenders.

Banks are required to issue MREL, or minimum requirement for own funds and eligible liabilities, which is a form of debt that can be written down to absorb losses and avoid repeating the 137 billion pound ($188.3 billion) taxpayer bailout of lenders in Britain during the financial crisis more than a decade ago.

The targets were set under European Union rules, which Britain now can change after leaving the bloc last December.

“Making it easier for firms to grow into MREL responds directly to firms’ concerns about barriers to growth created by the step up in MREL requirements as firms expand their balance sheets,” Bank of England Deputy Governor Dave Ramsden said in a statement.

The central bank has authorised 27 new banks since 2013, but Lloyds (LON:), Barclays (LON:), HSBC and NatWest continue to dominate retail lending and the so-called challenger banks have said that blunt thresholds for issuing MREL hold them back from building market share.

The BoE proposed replacing its indicative threshold of 15-25 billion pounds with a notice period setting out when a lender can enter transition to its MREL targets, if the company grows beyond 15 billion pounds in total assets.

“The proposals for an extended transition path are proportionate in implementation and directly respond to stakeholder feedback arguing for a ‘smoother climb’,” Ramsden said.

“They are inherently flexible and agile as they allow for a further extension if unforeseen circumstances demand it. And they enhance the transparency of the regime by being clearer when MREL requirements may start to apply to firms individually.”

($1 = 0.7274 pounds)

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