Financial regulator, the Prudential Regulation Authority, has been asked to reassess its capital restrictions on the Co-operative Bank.
A representative for over 1,300 investors in the Bank, has written to Andrew Bailey, the PRA’s Chief Executive, asking him to “review the requirement and timetable that it has imposed on the Bank”.
Mark Taber from Fixed Income Investments, who has represented investors in previous “bail-ins”, argues that the regulator is “inflicting an arbitrary and putative” 9% core capital ratio and implies that the Bank is a Systemically Important Financial Institution, which he believes it is not.
He said the “disproportionate” core capital ratio is double the Bank of England’s minimum capital requirement of 4.5% and significantly above the endpoint Basle 3 target for 2015 of 7%.
Mr Taber also blames the previous regulator, the Financial Services Authority, for approving the Bank’s acquisition of Britannia Building Society in 2009; and also says that banking regulators have admitted (see page one) they knew as far back as 2011 that the Bank needed to raise capital.
In the letter, Mr Taber also said: “Meanwhile the UK Government was publicly endorsing the Bank as a virtuous role model for banks, not involved in 'casino banking' and, as a 39 per cent shareholder in Lloyds Banking Group, supported the award of preferred bidder status to the Bank for Lloyd’s major disposal programme, Project Verde.”
He added: “As a direct result of the PRA's recent punitive and disproportionate actions we have moved away from a situation of the Co-op Group being prepared to do more to support its Bank, bondholders being willing and expecting to contribute on a voluntary basis and the requirement of approximately £800 million suggested by the audited accounts would have been filled.
“But the PRA's position and inflexibility (it is treating the Bank as a Systemically Important Financial Institution) has caused everyone to dig their heels in, threatens to cause a standoff and risks an outcome nobody wants.”
He has called on the PRA to review the £1.5 billion capital requirement; reveal on what basis the shortfall has been determined; and clarify if the legal minimum capital requirement is appropriate.
A spokesman for the Co-operative Group commented: “This solution draws on the support of the Bank’s key stakeholders, the Co-operative Group and the subordinated bondholders, allowing both to make a joint contribution to support the Bank at this crucial time, and to share in the upside of the transformation of the Bank. It is an equitable solution, arrived at after considering all alternatives, and will prevent the more severe adverse consequences for bondholders which might occur in the absence of such support.”
In this article
- Andrew Bailey
- Capital requirement
- chief executive
- Co-operative Bank
- Financial economics
- Financial services
- Fixed Income Investments
- Mark Taber
- Person Career
- Social Issues
- Systemically important financial institution
- The Co-operative Bank
- Tier 1 capital
- United Kingdom