Banking reform and macroprudential regulation implications.pdfVIP

Banking reform and macroprudential regulation: implications for banks’ capital structure and credit conditions Speech given by Paul Tucker, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of Prudential Regulation Authority Board At the SUERF/Bank of Finland Conference, ‘Banking after regulatory reform – business as usual’, Helsinki Thursday 13 June 2013 Many thanks for input and conversations to Steve Cecchetti and Anil Kashyap and, at the Bank, James Benford. For secretarial support, to Sandra Bannister, Alexandra Ellis and Vicky Purkiss. 1 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx Although the current reform programme rightly extends to the capital markets –over-the-counter derivative markets, clearing houses and shadow banking for example – nevertheless banking is at its core. So today I am going to draw out some of the implications for the credit system – starting with the micro regulatory regime and banks’ capital structure; and then moving on to the introduction of new macroprudential policies and their effect on credit conditions. Micro regulatory reform and banks’ capital structure At a micro-level, the banking reforms have two important components. A step change in regulatory requirements on capital, leverage and liquidity, in order to reduce the probability of banks failing. And recognising that failure cannot and should not be ruled out, establishing credible and effective resolution regimes. Separately and in combination, they will change how the risks in banks’ portfolios are distributed across shareholders, bondholders,