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27 January 2017

Financial Times: Bank of England attacks Brussels bank capital reforms

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The head of the UK’s banking supervisor has attacked a European Commission proposal to force overseas banks operating in the EU to set up holding companies with ringfenced capital.

Sam Woods, a deputy governor of the Bank of England and the head of the bank’s Prudential Regulation Authority, said: “It is not immediately clear to us that the proposals would enhance the effectiveness of resolution as intended.”

He added: “The commission’s proposals may also not be aligned with US rules.”

The proposals, published late last year, are shaping up to be one of the UK’s last big financial policy battles with Brussels before it exits the European Union, and there are concerns over how UK banks will be treated after Brexit.

Under the proposals, non-EU banks with significant activities in Europe would be forced to group their operations under “intermediate holding companies”. These could be forced by EU regulators to meet tougher capital rules and other standards intended to make sure that they can be safely wound down if they fail.

But Mr Woods argued in a letter dated January 19 and published on Friday that the US rules “differ from those proposed by the commission in a number of respects”. He added that the commission’s proposals “may not be aligned with US rules on the separation” of banks and broker-dealers.

He was responding to questions from Andrew Tyrie, the chairman of the Treasury select committee, on the feasibility of the proposals and what they might mean for UK banks after Brexit.

Other elements of the reform package “are not in line with international standards”, Mr Woods added, referring specifically to plans around deductions for banks’ holding of each other’s new special debt that converts to equity and is meant to stop taxpayer bailouts. [...]

Full article on Financial Times (subscription required)

Full letter

© Financial Times

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