The Bank of England has published a detailed analysis of the bank capital framework, examining whether the system of capital requirements that has been put in place since the financial crisis is achieving its objectives and whether it could be improved.
The analysis concludes that the framework has been successful in its primary objective of making the banking system significantly more resilient. UK banks now hold approximately ten times as much capital as they did before the crisis, and the system is far better able to absorb losses without threatening financial stability or requiring taxpayer support.
But the analysis also identifies areas where the framework could be improved. The interaction between different elements of the capital regime has created complexity that makes it difficult for investors and analysts to compare the capital strength of different banks. The framework's treatment of small and medium-sized banks may be unnecessarily burdensome. And the growth of non-bank finance has created opportunities for regulatory arbitrage.
The analysis is part of the Bank's programme of work to ensure that the regulatory framework remains fit for purpose as the financial system evolves. The Bank has said it will consult on proposed reforms to the framework later this year.
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