Basel III rules set to have ‘low’ impact on UK banks compared to US, says Bank of England

International rules on bank capital are set to have a “low” impact on UK lenders, according to new adjustments from the Bank of England, as Wall Street has warned the same framework could significantly weaken lenders in the US.

The central bank’s Prudential Regulatory Authority (PRA) estimated on Tuesday that under its plans to impose Basel III requirements, its aggregate tier one capital requirements for UK banks would rise by three per cent.

This figure is down from the Bank’s last estimate of six per cent a year ago.

Regulators plan to implement the measures in July 2025 and fully phase them in by 2030.

The PRA has adjusted some of the rules after receiving more than 120 responses to a consultation paper published last year.

The rules are expected to hit banks’ profitability while raising capital levels, stoking fears over a decline in the UK’s competitiveness.

However, the US is set to feel a much bigger impact under similar proposed rules, with firms in line for a 16 per cent rise in tier one capital requirements.

Wall Street has warned that the proposals risk making the country’s already struggling bank stocks even less attractive to investors. US bank stocks plunged to an all-time low relative to the S&P 500 index last month.

Meanwhile, the European Banking Authority has estimated banks in EU countries will see a 10 per cent jump in tier one capital requirements.

“The focus of these rules is not on the aggregate amount of capital in the system but on making sure that risk is properly captured across a range of firms and activities,” said Sam Woods, chief executive of the PRA.

He added that today’s adjustments would “improve the clarity of rules” and “enhance the relative standing of the UK as a place for internationally active firms to operate.”

Basel III, known as Basel 3.1 in the UK, was introduced by the Basel Committee on Banking Supervision – a group of central banks from 28 countries.

It is the latest in a series of Basel Accords rolled out in the wake of the 2008 financial crisis.

“While this first statement is important, we should remember that it deals with the less contentious aspects of implementing Basel 3.1 in the UK,” said Simon Hills, director for prudential policy at banking trade body UK Finance.

“The second statement, due out in Q2 next year, will be much more important for firms’ ability to boost the UK’s economic growth through lending.

“Transitioning the supporting factors for SMEs and infrastructure, arriving at a fair treatment of unrated regulated financial services firms such as investment funds, agreeing a proportionate risk weight when it comes to secured lending to SMEs and ensuring workable mortgage valuations will be vital.”