Risk: UK banks count cost of EU software capital reversal

Top UK banks’ solvency ratios would lose an average of 29 basis points from a reversal of European Union rules that allow investments in software to count as regulatory capital. The average Common Equity Tier 1 (CET1) ratios of Lloyds, HSBC, Standard Chartered, NatWest and Barclays rose from 15.6% to 16% in the three months to end-December, according to Risk.

Earlier in February, the Financial Times explained that the Bank of England’s split from EU regulations became evident after a “harsh verdict on the decision, the BoE’s Prudential Regulation Authority has said that it had “found no credible evidence that software assets can absorb losses effectively in stress” and is “therefore concerned . . . [the rule] could undermine the safety and soundness of UK firms”. Christopher Cant, an analyst at Autonomous, said “the wording of the statement . . . is unusually strong” and it makes the PRA’s “dim view . . . on the non-deduction of software intangibles rather plain”.

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