British banks must find £4bn to protect public

BANKS BASED in the UK will need to find an extra £4bn to help protect British taxpayers from being forced to fund another round of bailouts, the Bank of England has warned.

Estimates released by the Bank show an industry-wide shortfall in the amount that banks, building societies and investment firms need to hold in order to meet new guidelines known as the minimum requirement for eligible liabilities and own funds (MREL), set to come into force in 2022.

Firms will be required to restructure existing debt worth a total of £116bn, but are currently facing a net shortfall of £4bn in order to meet the new regulations, the consultation document explained.

MREL forces banks to hold enough money to absorb losses, which could be drawn down in the face of collapse to finance an orderly wind-down.

UK banks have already been building up significant balance sheet buffers since the 2008 financial crisis to meet new rules.

MREL requirements aim to help avoid another round of bank bailouts, as seen during the last financial crisis when the UK Government was forced to step in and save Royal Bank of Scotland and Lloyds Banking Group, spending £46m and £20.5bn respectively of taxpayer cash.

The Government also made moves to nationalise both Northern Rock and Bradford & Bingley during the crash.

While the Bank warned that the MREL safeguards could increase the cost of lending for consumers, and may have a “negative effect on investment and the level of GDP (gross domestic product)”, it suggested those costs were worth the benefits.

“Ensuring that institutions have sufficient loss-absorbing capacity in resolution is necessary to make resolution credible without public capital support and therefore to end the ‘too big to fail’ problem,” the paper explained. “It can also ensure the continuity of critical functions and reduce uncertainty associated with institution failures.”