In October’s GT Alert on non-bank lending, we focussed on whether there was a justification in banks being subject to regulatory capital requirements when non-bank financial institutions (NBFIs) were not. Professor Simon Gleeson’s evidence – that banks are permitted to take deposits from the public, whereas NBFIs are not – was an important justification for a differentiated regulatory approach.
In this GT Alert, we provide an overview of how the amount of regulatory capital that a UK bank is required to hold is quantified and whether there is a case for reconsidering the current approach. This is based largely on the evidence Lord King of Lothbury, the former governor of the Bank of England, provided to the Financial Services Regulation Committee (the Committee) of the House of Lords. We also consider certain other observations Lord King made in relation to the regulation of banks and NBFIs.