The Bank of England has defended the UK treatment of banks’ software assets as several large lenders challenge its comparison of British and US capital requirements. A lender-commissioned study estimates that planned US reforms could leave major UK banks with like-for-like common equity tier 1 requirements 1.9 percentage points above their American rivals, equivalent to £22.5bn of CET1 capital or £750bn of additional lending capacity.
The disagreement centres on how regulators make cross-border comparisons. In December, the Bank of England said capital requirements for large UK banks were lower than those faced by US peers after differences between the two systems were taken into account. That assessment supported only a modest easing of the restrictions applied to the sector.
The competing study reached a different result. It put the average capital requirement for HSBC, Standard Chartered and Barclays at 11.8 per cent, compared with 10.6 per cent for the six largest US banks, a group including JPMorgan Chase, Citigroup and Goldman Sachs. After adjustments for differences in risk assessment and software intangibles, the study placed the UK figure at 12.6 per cent and the US figure at 11.3 per cent.
Software treatment accounts for a significant part of the divergence. UK banks must deduct software assets from regulatory capital, while US banks apply a risk weight and EU banks are permitted to deduct those assets over time. The study applied a 0.8 percentage point adjustment for software intangibles to the UK calculation. It estimated that regulatory changes under President Donald Trump’s administration would reduce the comparable US requirement to 10.7 per cent.
UK Finance has separately said software deductions reduced the capital levels of large UK banks by about £5.5bn in 2024, an increase of about 4 per cent from a decade earlier. The trade body has argued that closer alignment with other jurisdictions would support further investment in software used by UK banks.
The Prudential Regulation Authority has maintained its position. The Bank of England said earlier this month that the PRA’s full deduction policy was based on evidence that software assets could not absorb losses effectively in liquidation or under stress. It also said no evidence had been received that would justify changing that assessment.
The software-capital disagreement forms part of a wider debate about the competitiveness and regulatory treatment of banks operating across different jurisdictions. Finance Gazette has covered the FCA’s planned role in AML supervision from 2028, the UK financial-regulatory deadlines for 2026–27, Wise’s OCC bank-charter rejection and Revolut’s French banking-licence process.
Bank valuations and lending conditions are also influenced by monetary policy. Finance Gazette’s explainers examine what interest rates are and how they work, why interest rates rise and fall and how interest rates affect inflation.
European rate expectations are covered separately through analysis of how high ECB interest rates could go, the ECB rate decision and oil-inflation backdrop and Philip Lane’s discussion of a medium-sized inflation shock and the 2% target.
Funding markets provide another connection between regulation and bank balance sheets. Finance Gazette has examined South East Water’s £200 million bond plan, US Treasury long-term bond buybacks, investment-grade bond outflows tracked by LSEG Lipper and Freddie Mac’s US mortgage-rate data.
Cross-border regulatory and currency issues can complicate comparisons further. Related analysis includes currency intervention versus currency manipulation, the Prudential Financial/Japan FSA yen reimbursement issue, developments involving Commerzbank and UniCredit, the FCA-backed UK equity consolidated-tape project and the Bank of England’s review of Asian AI exposure involving SK Hynix, TSMC and CXMT.
The operational issue is whether software investment continues to consume UK regulatory capital more heavily than in competing markets. Unless the PRA changes its approach or the transatlantic comparison is resolved, technology budgets, CET1 planning and lending-capacity assumptions will remain linked to materially different regulatory assessments of the value of software during a financial crisis.
