Be simple in bank capital, Bank of England tells global regulators

LONDON: The complex system of bank capital buffers could be radically simplified to encourage banks to keep lending in a downturn, Bank of England (BoE) Deputy Governor Sam Woods said on Tuesday.

As economies went into a tailspin during lockdowns to fight COVID-19 in 2020, banks were leery about tapping their buffers to keep lending, fearing a backlash from investors worried about fresh capital raising.

The Basel Committee of global regulators, whose members include the BoE, is looking at how to make buffers more usable after what happened during the pandemic.

Woods proposed a “Bufferati”, or more streamlined system for Basel to consider.

“My simple framework revolves around a single, releasable buffer of common equity, sitting above a low minimum requirement,” Woods told the City Week event in London.

“This would be radically different from the current regime,” Woods said. Regular stress testing of lenders would determine capital levels.