The Basel 3.1 reforms are the final part of the internationally agreed Basel 3 framework. Today’s proposals, announced by the Prudential Regulation Authority (PRA), mark the end of the post-2008 crisis capital reforms and give the certainty industry will need to invest for growth.
Chancellor of the Exchequer Rachel Reeves welcomed the reforms, saying they would deliver certainty for the banking sector to “finance investment and growth in the UK” ahead of a joint meeting with the Bank of England Governor to discuss them with CEOs of the UK’s largest banks and building societies in No11 Downing Street.
Chancellor of the Exchequer Rachel Reeves said:
Today marks the end of a long road after the 2008 financial crisis.
Britain’s banks have a vital role to play in helping businesses to grow, getting infrastructure built and supporting ordinary peoples’ finances.
These reforms will strengthen the resilience of our banking system and deliver the certainty banks need to finance investment and growth in the UK.”
Economic Secretary to the Treasury Tulip Siddiq said:
These new rules bring the UK in line with international standards while supporting the dynamism of the UK economy.
This is a balanced package that promotes the competitiveness of the UK banking system as well as economic growth.”
The PRA’s new rules, including those already announced in December 2023, have both financial resilience and growth at their core, reflecting an increased focus on growth and competitiveness.
Banks and building societies will have to maintain sufficient capital against risks, such as loans not being repaid, to protect people and businesses from the fallout from a 2008-style financial crash.
The PRA’s near-final rules also include a number of changes from its initial proposals that will support economic growth and competitiveness. The key changes made by the PRA will:
- Lower its proposed capital requirements for lending to small and medium-sized businesses (SMEs). This will mean lending to SMEs continues to be supported, helping to deliver the government’s ambition to make the UK the best place in the world to start and grow a business.
- Lower its proposed capital requirements for infrastructure projects, ensuring no increase on current requirements and supporting the UK’s transition to net zero.
- Streamline the approach banks can take to mortgage lending, by simplifying the approach to valuing residential property.
The PRA’s new rules will come into force on 1 January 2026, providing the banking sector with the certainty it needs to prepare for the new requirements. The Treasury will repeal the legislation required for the PRA to move forward with the Basel 3.1 package.
The PRA published proposals for a simpler regime for smaller firms alongside its near-final Basel 3.1 rules. This regime will make it easier for smaller banks and building societies to lend by minimising the number of calculations they are required to make and introducing a single capital buffer.