British financial circles bet on the central bank's "big loosening" G7's capital-thickest banking system welcomes reevaluation.

The top financial lobbying organization in the UK has stated that, as the market becomes increasingly concerned that a package solution will not meet the widespread expectations of investors, the Bank of England needs to take a "bold and strategic benign approach" in its first comprehensive review of capital requirements for the UK banking sector in a decade. According to a confidential document submitted to the Bank of England's Financial Policy Committee by UK Finance, "capital requirements are no longer in line with international banking peers pursuing the same financial stability objectives, resulting in the UK having the highest nominal capital requirements among G7 countries." Media reports suggest that the document was submitted just days before the launch of the Bank of England's consultation on the banking capital framework. The Bank of England's banking capital review process, expected to begin on December 2nd, will detail the policymakers' initial judgment on how much capital the banking sector in the UK should hold. Bankers in the UK anticipate that the financial regulatory authority will seek views on potential relaxations in certain areas, such as the significant buffer capital they are currently required to hold. This is seen as a signal by major commercial banks, indicating where the Bank of England is most willing to make adjustments. This action comes amidst the Federal Reserve's imminent large-scale regulatory easing, while in Europe, the relaxation of regulations is more moderate - for example, the European Central Bank (ECB) believes that simplifying certain capital requirements is key to achieving higher regulatory efficiency. While the UK has already relaxed some regulatory requirements, it has not yet touched on core capital requirements. Analysts from Wall Street financial giant Jefferies wrote in a report sent to clients earlier this month that "the noise around the UK domestic financial system 'potentially recalibrating its view on how much Tier 1 capital banks ought to hold' is getting louder and louder." The analysts added that once actual changes occur, it will significantly boost bank shareholder distributions, helping to reduce their cost of equity, as investors digest the positive signals of regulators shifting their stance towards banks. UK Finance stated that during the last major review event in 2015, the Bank of England referred to the optimal range of Tier 1 capital as between 11% and 14%. According to the Bank of England's internal compiled data, this level has since risen to 17.2%. The association urged officials to lower the proportion of the "rainy day" buffer from the current 2% to 1% or even 0%, while relaxing rules on the leverage ratio of the UK banking sector and re-examining capital buffer requirements for banks not designated as globally systemically important. The large lobbying organization stated that such measures "would release more funds from the banking system to support more UK businesses and households, and could support the government-led Modern Industrial Strategy, helping ensure that the UK banking industry continues to be the core driver of economic prosperity." The term "rainy day" mentioned here is not literal rain but a metaphor in financial regulation, referring to an economic downturn/pressure period when the banking system faces a "rainy day" and needs to utilize the "countercyclical capital buffer" to withstand shocks. In normal years (when the economy is stable), UK regulators require banks to hold an additional "reversible capital cushion"; this cushion cannot be easily used for lending under normal circumstances, but is mainly released by regulators in times of obvious economic deterioration, tight financial conditions, or rising systemic risks, allowing banks to use this capital to continue lending and avoid sudden credit contraction. One of UK Finance's demands is to make this buffer thinner during normal times so that banks can free up more capital for the real economy now, rather than holding it in reserve for the future "stormy days". UK Finance emphasizes that having such a thick buffer is unnecessary during normal times, and hopes for a "permanent value" of just 1%, or even defaulting to 0, so that the current capital being "locked in the buffer" could be reduced, allowing this capital to be directly used for lending to businesses and residents. However, the large lobbying organization emphasized in its submission that it is not "seeking to lower capital levels to below the extent that would threaten financial stability and cause economic damage similar to that of the 2008 financial crisis." A spokesman for the Bank of England declined to comment. Currently, the Bank of England is facing increasing pressure, with market participants urging it to take more accommodative actions to boost economic growth, which has fueled expectations that it will have no choice but to propose meaningful policy optimizations and adjustments. Some views suggest that these expectations of further regulatory easing have partially driven the sharp rise in recent months in the core bank stocks in the UK. For example, under these optimistic expectations, the FTSE 350 Banks Index has already risen by 45% this year. If the Bank of England does indeed loosen regulations further as expected by the market, UK bank stocks are likely to undergo a new round of "reassessment of value", with valuations of traditional UK banks such as Barclays moving closer to their Wall Street counterparts. However, a senior executive at a major UK bank stated that investors who have high expectations for this review may face disappointment, as the UK has repeatedly emphasized its commitment to high capital standards. Another colleague at another major bank suggested that this review may not bring about substantial, significant easing changes, as commercial banks are often cautious about depleting their capital buffers excessively, to guard against the Bank of England rapidly changing its stance later on.