IoD press release IoD response to PRA consultation on the implementation of the Basel 3.1 standards
The Institute of Directors has responded to the Prudential Regulation Authority’s consultation (CP16/22) on the ‘Implementation of the Basel 3.1 standards’.
The proposals relate to the method of calculating the value of risk-weighted assets (RWAs) held by regulated entities. This value is then used as the denominator for the calculation of regulated capital ratios, so affecting the amount of capital that a bank needs to hold. The higher the value of the risk-weighted asset under the proposed methodology the higher the amount of capital that a bank needs to hold to achieve a given capital ratio.
IoD members rely on the health of the business banking sector to conduct their daily operations. The IoD wants to see a well-capitalised sector with a robust and well-evidenced approach to risk, that can provide IoD members with value-for-money access to finance for investment and working capital purposes as well as day-to-day business banking services. It is therefore also in the interests of IoD members to have a competitive market for business banking to increase choice and drive down fees.
In its response to the consultation, the IoD has set out two main concerns about the proposals:
Withdrawal of the SME support factor
“We oppose the withdrawal of the SME support factor because we are concerned it will lead to less finance available to our members compared to the current situation and that this decision is being taken without an appropriate evidence base for change.”
Higher risk rating for secured lending to individual businesses
“We understand the importance of ensuring that any systemic risk in the UK economy arising from potential repricing of commercial property is minimised.
“However this has led to an anomaly in the proposals where lending to a business that is secured against their building is given a higher risk rating than unsecured lending, which may lead to a perverse incentive on lenders to engage in riskier lending.”
The Institute of Director’s full consultation response is available here.