Latest news with #MREL
Mint
26-05-2025
- Business
- Mint
Ring-Fencing Was a Good Idea That UK Banking No Longer Needs
(Bloomberg Opinion) -- UK banks want the government to abolish a key piece of post-financial crisis regulation that forces them to keep ordinary depositors' money legally separate from their trading and investment-banking business. This uniquely British setup, known as ring-fencing, limits the kind of lending banks can do and raises their costs. Well, most lenders don't like it. Barclays Plc alone is happy with the rules, which may be because it is uniquely placed to benefit from any protections they afford. I was always a big supporter of the idea behind this separation, but I'm no longer convinced the setup achieves much at all — for depositors or for Barclays. Ring-fencing is back in the news as the UK government looks desperately for anything that might stimulate investment and growth. The Bank of England is looking at ways to further relax their impact after having already made some changes in February. Big banks wrote to Britain's finance minister, Rachel Reeves, last month saying the rules should be scrapped, and a string of executives from large and small banks gave more views in front of a parliamentary committee last week. Vim Maru, chief executive officer of Barclays UK, reiterated the bank's case that the cordon around retail deposits has boosted financial stability and trust in lenders. Other countries have seen banks stumble and fall in the past couple of years, he said, while the UK has been immune. 'I think that is because we have ring-fencing,' Maru said. Other big banks, like HSBC Holdings Plc and NatWest Group Plc, complained about the additional costs for IT services, reporting and governance (a ring-fenced subsidiary needs its own independent board of directors). Executives also claim it leaves them stuck with redundant cash. 'I really think that a review now, to try to recalibrate that so that you are putting more oxygen into the economy, would be timely,' Ian Stuart, CEO of HSBC UK, told the committee. He also pointed out that US investment banks with small retail brands are free to raise UK deposits and use them wherever in their investment banks they wish. Ring-fencing doesn't apply until deposits exceed £35 billion ($47 billion), which rose from £25 billion in February. So, Chase UK — the British digital brand of JPMorgan Chase & Co. — or Goldman Sachs Group Inc.'s Marcus can use ordinary people's cash for 'casino banking,' but Barclays, HSBC or NatWest can't. In the context of JPMorgan's massive balance sheet, UK deposits aren't much, but they're still a nice source of a little cheap money, and US lenders don't need any more competitive help. The ring-fencing threshold was raised to give small, local challenger banks and fintechs room to grow, but for them this isn't the hurdle that hurts. Starling Bank Ltd. and peers such as Monzo Bank Ltd. are less hemmed in by lending restrictions and more by capital requirements that kick in sooner. The so-called MREL rules govern how much equity and loss-absorbing debt a bank must issue and start to apply when total assets reach £15 billion to £25 billion. Raman Bhatia, Starling CEO, told Parliament on Thursday that small lenders' capital requirements can jump by up to two times at that point. This is a much lower boundary than in Europe, where MREL rules start applying to banks with assets of €60 billion ($68 billion) to €100 billion, according to industry executives. If the ring fence isn't a competition for challenger banks, it might be for JPMorgan's Chase UK brand, which would need lending restrictions, an independent board and so on if it wanted to compete harder with Britain's four big incumbents on their own turf. Maybe that's a benefit to Barclays. Its UK business is good but produces a lower return on risk-weighted assets than HSBC's UK business, while also deploying more of its deposits into lending than HSBC. Still, if JPMorgan really saw value in taking on UK lenders, it could afford to go after market share with or without the ring fence. The real value for Barclays might instead lie in the size of its investment bank, which is a much bigger proportion of the group than for peers. Trading and capital markets account for 56% of Barclays risk-weighted assets, although it has a target to get that down to 50%. At HSBC, the whole corporate and institutional unit, which is a broader business than straight investment banking, accounts for 46% of the balance sheet. At other UK lenders, the proportion is lower still. So perhaps Barclays is more worried than rivals about testing depositor trust if they realized they were relatively more exposed to global financial markets. It's possible, but I'm dubious it makes any difference. Inside the ring fence, retail deposits are mostly insured up to £85,000 — which could soon rise to £110,000. And that insurance is paid for by industry levies, not the taxpayer. If ordinary people are aware of ring-fencing at all, they'll be more aware of deposit insurance and the protection that gives them. If government or regulators really believe removing the ring fence increases the likelihood of bank runs, a sensible countermeasure could be to increase the scale of the deposit insurance fund to reassure people about the speed of recoveries if a big bank fails. The final part of ring-fencing that really matters is the assurance it gives that a UK retail bank's core services will continue to function if the larger group it's part of gets into real trouble. But even that is also covered by the detailed resolution planning regime that banks must meet. Ring-fencing was a good idea that has become redundant. Scrapping it won't boost UK growth suddenly — it'll take several years to pass and then implement the legislation, while banks will face another round of costs to restructure their businesses again. But it does just seem like a friction that no longer serves a purpose. More From Bloomberg Opinion: This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times. More stories like this are available on
Yahoo
13-05-2025
- Business
- Yahoo
Fixing SME finance needs more than MREL reform – it needs a bigger role for the British Business Bank
The government's recent meeting with senior executives from HSBC, NatWest, and Lloyds confirmed what many in industry and policy circles already know: the UK's SME finance market remains dysfunctional. Loan approval rates have dropped significantly since the pandemic, business owners continue to report unresponsive lenders and rigid terms, and challenger banks—those best placed to serve smaller firms — are increasingly constrained by regulatory capital requirements. The Minimum Requirement for Own Funds and Eligible Liabilities (MREL), introduced in the UK in 2016 in line with post-2008 global reforms, is a central part of this picture. Designed to ensure that banks can be wound down safely and without public cost, MREL requires institutions to hold substantial volumes of loss-absorbing capital. However, under the UK's implementation, any bank crossing the £15 billion asset threshold faces a sharp and immediate increase in its capital obligations, regardless of its actual systemic risk. The effects are clear: challenger banks are discouraged from growing beyond the threshold, limiting the pool of institutions actively competing to serve small firms. While high-level policy discussions have focused on adjusting the MREL framework—either by lifting the threshold, expanding eligible instruments, or extending the glide path—there has been little discussion of a complementary role for the British Business Bank (BBB). This is a missed opportunity. Paragon Bank, a mid-tier lender, has highlighted the disproportionate impact of MREL on non-systemic institutions. In its submission to the Treasury Committee, Paragon noted that the UK's MREL threshold of £15–25 billion is significantly lower than in other jurisdictions, such as the US ($100 billion) and the EU (€100 billion). This lower threshold brings mid-tier and specialist banks into a regime intended for the largest, globally significant firms, increasing their funding costs and refinancing risks. Paragon estimates that it could reduce mid-tier bank lending by £62 billion over five years, according to EY analysis. UK Parliament Committees The BBB has a statutory remit to improve the supply of finance to SMEs. It already operates guarantee schemes, such as the Recovery Loan Scheme, and works through private sector delivery partners. But in the current environment, where regulatory capital rules are interacting with a concentrated banking sector and volatile wholesale funding conditions, the BBB could do more than de-risk loans. It could become a capital access facilitator for non-systemic banks, particularly those constrained by MREL but not classified as globally systemic (G-SIBs). This would involve developing funding programmes that reduce mid-tier banks' dependence on wholesale markets, which remain costly and procyclical. The BBB could structure longer-term debt facilities, co-financing tools, or credit-enhanced capital market products to support SME lending. It could also back alternative mechanisms, such as asset finance and leasing, which remain underdeveloped in the UK. The need for action is clear. According to the Department for Business and Trade's report ahead of the SME finance review, 'loan success rates for companies applying for bank finance are low in the UK at less than 50% on average.' This is down from 67% in 2018, before the pandemic, and reflects not only tighter risk appetites but also structural weaknesses in the finance ecosystem. The discussion so far has focused largely on risk regulation and capital adequacy. But reforming MREL in isolation will not remove the structural funding constraints that prevent non-systemic banks from scaling. The BBB, if adequately capitalised and empowered, could fill this gap, supporting a more resilient, diversified, and investment-focused SME finance system. This would not require a wholesale redesign of the financial system. It would mean broadening the scope of an existing institution to play a more active role in market design and funding distribution. It would also align with the government's stated objective of making the UK the best place to start and grow a business. As the government weighs its response to the SME lending consultation, the case for MREL reform should consider parallel expansion of the BBB's mandate and tools, because not doing so risks missing an opportunity to strengthen the infrastructure of SME finance to lay the groundwork for more inclusive economic growth. "Fixing SME finance needs more than MREL reform – it needs a bigger role for the British Business Bank" was originally created and published by Leasing Life, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
Yahoo
28-02-2025
- Business
- Yahoo
Metro Bank Holdings PLC (MTRBF) (FY 2024) Earnings Call Highlights: Strong Profitability and ...
Net Interest Margin (NIM): Exit NIM at 2.65%, up from guidance of 2.5%. Profitability: GBP 13 million profit for the second half of 2024. Loan Originations: 71% increase in corporate, commercial, and SME lending year-on-year. Current Accounts Opened: 110,000 personal and 36,000 business accounts in 2024. Cost Savings: GBP 80 million in run rate savings achieved. Cost of Deposits: Reduced to 1.4% from a peak of 2.29%. Asset Sales: GBP 2.5 billion residential mortgage and GBP 584 million unsecured loan book sales. Revenue Growth: 15% increase half-on-half. Statutory Profit After Tax: GBP 42.5 million for the year. Total Costs: Reduced from GBP 530 million to GBP 510 million. Headcount Reduction: Decreased by 100 colleagues in 2024. Store Openings: Three new stores planned for 2025 in Chester, Gateshead, and Salford. Warning! GuruFocus has detected 5 Warning Sign with MTRBF. Release Date: February 27, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Metro Bank Holdings PLC (MTRBF) outperformed its guidance with a net interest margin of 2.65%, exceeding the expected 2.5%. The company achieved profitability in the second half of 2024, generating a GBP13 million profit. New loan originations in corporate, commercial, and SME lending increased by 71% year on year. The bank opened 110,000 personal current accounts and 36,000 business current accounts in 2024, capturing over a 5% market share in business accounts. Metro Bank Holdings PLC (MTRBF) formed a strategic collaboration with Infosys to enhance automation, customer experience, and AI capabilities. The cost discipline measures led to difficult decisions, resulting in a reduction of headcount by 100 colleagues. The company faced increased costs related to fraud, which is a growing concern within the industry. Despite profitability, the bank's statutory profit after tax was GBP42.5 million, indicating room for improvement. The bank's stage 3 loans increased by 15% in the second half, raising concerns about credit quality. Metro Bank Holdings PLC (MTRBF) remains under the MREL regime, which imposes additional costs, despite its balance sheet being below the GBP20 billion threshold. Q: How do you expect the shift towards commercial lending to impact your retail SME deposit mix, and how will you retain retail depositors? A: We remain committed to the retail segment, providing excellent service with more average headcount per store and longer hours than any other UK high street bank. We opened 110,000 personal current accounts in 2024 and will continue to grow this market. The deposit mix will shift slightly over time, but we will maintain our focus on retail. Regarding the unsecured lending portfolio, it was in runoff, and its income profile was declining, so selling it was a strategic move to reinvest in higher-yielding commercial growth. Q: Can you clarify the impact of Treasury asset repricing and capital structure optimization on future earnings? A: The Treasury asset repricing will have a more significant impact in 2026 and 2027, as many assets mature towards the end of 2025. Asset rotation and cost of deposits will drive uplift in 2025. All actions related to optimizing the capital structure are included in our NIM and Rodi guidance. Q: What is your expectation for the longer-term cost of risk, given the changing mix of your book? A: We had a benign year with less than expected credit loss charges. Through the cycle, we anticipate a cost of risk between 40 to 60 basis points. This range accounts for the changing mix and economic conditions. Q: With your balance sheet below GBP20 billion, what are your expectations regarding MREL requirements and resolution strategy? A: We assume no changes to our MREL requirements and resolution strategy, despite our balance sheet being below GBP20 billion. Our guidance includes the cost of additional MREL, assuming we remain in the regime for the next five years. If we were released from the regime, it could add 5 to 7 points to Rodi. Q: Can you explain the implications of recognizing the deferred tax asset and the expected restructuring charges for 2025? A: Recognizing the deferred tax asset reflects our confidence in future profitability, which will shield our tax as we earn profits. We do not expect similar restructuring charges in 2025 as we have set up the bank for future growth. Our return on tangible equity guidance is fully inclusive of all costs. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Sign in to access your portfolio
