Nationwide and Barclays have come under scrutiny recently for increasing the amount that they are lending to business and home-owners. Due to an investigation into this by the country’s top banking regulator, they now face being penalised for their actions. The regulator wants them to comply with a “leverage ratio” target which it is believed they would have to either sell off existing loans or find another way to raise more capital. It has been suggested that Barclays could have to find as much as £8 billion to meet the regulators requirements. If they decide not to do this then their other option is to reduce their assets by up to £280 billion.
In the case of Nationwide, the consequences could potentially be even more drastic due to its mutual status as a building society. This status changes the rules on how the lender interacts with the shareholders. An official from Nationwide commented that, “The impact of the core Tier 1 leverage ratio is to effectively penalise the very banks that have been doing the most to support the economy. It is hardly surprising that banks are wary about increasing their loan books when regulation can change so suddenly”.
The Prudential Regulation Authority is now expecting to receive a strategy from both banks by the end of June on how they will reach the targets. In response to demands, Barclay’s issued a statement confirming that the bank was willing to stay “in discussion” with the Prudential Regulation Authority in order to reach an amicable resolve over the dispute in regulation. These new regulations were revealed at the same time as an investigation into a £27 billion hole was discovered across five of Britain’s biggest banks. Fines have already been imposed for those involved however; the amount of the fines is nowhere near comparative to the amount of the shortfall. Regulators have also investigated risk weighted assets and have instructed eight banks to increase their risk weighted assets by £169.4 billion between them. Royal Bank of Scotland is most affected by this regulation and will have to adjust figures by approximately £56.3 billion.