PRA comments on “Geofinance”

Sam Woods, speaking at Mansion House,  commented on what he predicts to be an increasingly prevailing dynamic in financial institutions and financial regulation. Geofinance is the impact of geography on how banks, insurers and regulators operate, and Woods remarks that it “is likely to be the defining challenge of the next few years.”

Woods stated “stability begins at home” as he announced a proposed expansion of capital and liquidity reporting requirements to offset risks inherent in double leverage. Comments were also made regarding the positive impacts of ring-fencing retail and SME banking from global wholesale and investment banking. He said that ring-fencing retail banking is geofinance in action in what he said is a good way – predictable, clear, proportionate and efficient. He also heralded PRA’s desire to address the risks that banking groups can present, and its consultation to make UK banking groups at least as strong as their parts. One of its proposed actions is to reserve the right to set double leverage limits or apply capital add-ons for group risk.

Tied to ring-fencing is Brexit negotiation: PRA expects EEA banks to move any material UK retail business into subsidiaries, and hopes for an implementation period subject to successful negotiations. Moving forward, Woods hopes to deepen cooperation and properly supervise wholesale banking on a global level, so as to complete the task of implementing reforms in the wake of the financial crisis. He spoke of the UK current position as host to both subsidiaries and branches of third-country banks, each of which it already expects to have a viable and sustainable UK business model.