By Huw Jones
LONDON, April 3 (Reuters) - Forcing banks to set aside
more capital in case loans to small and medium-sized companies
turn sour would hit Britain's economy, banking industry body UK
Finance said on Monday.
The Bank of England is deciding how to implement the final
leg of Basel III, a suite of tougher bank capital rules
introduced after many lenders were bailed out by taxpayers in
the 2007-09 global financial crisis.
It has proposed ending the preferential capital treatment
for loans to small businesses, known as the SME supporting
factor.
"The SME support factor should not be completely and
suddenly removed," UK Finance said in a statement.
"Without it the cost of lending to a critical component of
the UK economy will increase and lending appetite reduce."
If the BoE does go ahead, capital reduction should be
maintained on loans already made, the capital hit to secured
loans should be less harsh, and a transitional phase-out period
should be introduced, UK Finance said.
The BoE has said no final decision has been taken on the SME
supporting factor.
UK Finance also opposed a BoE proposal for preferential
capital treatment on loans for infrastructure investments,
saying it would make it harder for banks to back Britain's
climate objectives.
Basel introduces an "output floor" to avoid big banks who
use their own models to calculate capital buffers from having an
advantage over small lenders, who must use more conservative
criteria set out by regulators.
Britain should bring the floor into line with other
countries to avoid a competitive disadvantage, UK Finance said.
The European Union is also finalising how it will apply the
remaining Basel rules, and may ease the impact of the output
floor on big banks in some areas of activity.
The BoE plans a simpler capital regime for smaller UK
lenders, and UK Finance said the central bank should apply it to
subsidiaries of foreign lenders operating in Britain as well.
(Reporting by Huw Jones; Editing by Hugh Lawson)
Messaging: huw.jones.thomsonreuters.com@reuters.net))
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