Bank of England Lightens Up on Too-Big-To-Fail Buffers

Britain's central bank on Tuesday gave banks more time to build up the financial buffers required to keep the taxpayer off the hook in future financial crises.

The move follows an eleven-month consultation period during which lenders persuaded the Bank of England to fit in with European Union norms and not disadvantage domestic banks by front-running the process.

The Bank of England said so-called systemically important banks, including HSBC (HSBC) , Royal Bank of Scotland (RBS) , Barclays (BCS) and Standard Chartered (SCBFF) will still have to meet an interim target of total loss-absorbing capacity, or TLAC, of 16% of their risk-weighted assets or 6% of leverage exposures by 2019 and somewhat more onerous requirements in 2020. But "end-state" requirements for these too-big-to-fail banks will be delayed for two years and be subject to review in 2020.

The idea is that the largest U.K. banks will hold sufficient resources - known in the jargon as the minimum requirement for own funds and eligible liabilities, or MREL, to allow the Bank of England to "resolve them in an orderly way," in the case of a crash. Other banks will also have phased requirements, though they will be spared the 2019 starting date.  By 2020 they will have to meet interim requirements and by 2022 they will need to hold 18% of risk-weighted assets, or 6.75% of all assets.

The Bank of England also lightened the burden on smaller banks and building societies by raising the size they need to reach before tougher buffer requirements kick in. Small lenders were previously to be defined as those with less than 40,000 active accounts. Now the central bank has decided to assess them within a range from 40,000 to 80,000 active accounts, since they will anyway be judged on a company-by-company basis.

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