NatWest chair blasts how Bank of England regulates lenders

FILE PHOTO: Outbreak of the coronavirus disease (COVID-19) in London

By Huw Jones

LONDON (Reuters) -The Bank of England (BoE) risks leaving banks "uninvestible" due to how it applies capital requirements and introduces ad hoc changes like banning dividends, NatWest Chair Howard Davies said at an event on Tuesday.

The BoE was holding a conference on how it could apply its new objective of facilitating the post-Brexit global competitiveness of the financial sector.

Davies, who is due to stand down next year, singled out how the British central bank stopped banks paying dividends during COVID-19 as an example of rulemaking where competitiveness should have been considered, given banks were well capitalised.

"The dividend ban was, I believe, a damaging intervention, and suggested a lack of confidence in the regulator's own regime, and damaged the image of European banks in the eyes of investors with a significant impact on competitiveness," Davies told the conference.

The BoE's banking supervision arm, the Prudential Regulation Authority (PRA), has become a "gone concern, rather than a going concern regulator", or too focused on capital holdings and coping with potential failures, Davies said.

PRA plans for implementing the remaining Basel global capital rules could leave UK lenders at a competitive disadvantage to European Union rivals, he added.

Victoria Saporta, BoE executive director for prudential policy, rejected Davies' criticisms, saying Britain's better capitalised banks were able to keep lending during recent crises.

"We are very much operating a going concern regime, and I can assure you that equity capital is all about maintaining firms as a going concern," Saporta told the conference.

Davies said regulators didn't give the impression they were much interested in profitability and viable business models.

"We can't assume that the major institutions on which the system is built can sustain ever increasing capital requirements and more and more costly consumer focused interventions," he said.

David Sansom, chief risk officer at Lloyd's of London insurance market, said there was a need to get regulators more comfortable having "commercial" conversations with firms.

(Reporting by Huw Jones; Editing by Sharon Singleton and Mark Potter)