First, with the help of a PRA robot they have for the first time been able to map all the barriers, and show how complex our rules are.1 And second, together with our credit union supervisors they have taken a fresh look at capital requirements for that sector and proposed some quite radical changes in order to promote the growth of successful firms.2 Barriers The first thing we’ve done is take a fresh look at the various thresholds which arise in our regulations. To date this debate has been massively dominated by two features of the regime: the ability of firms to model their capital requirements (using IRB) rather than use a standardised approach, and the need for firms to issue bail-in debt (MREL) once they reach a certain size. These are both very important issues. On credit risk, we have taken three very important steps in recent years: the introduction of our modular approach for IRB applications; the introduction of our “holistic” approach to P2A-setting for eligible firms on standardised; and our success in getting Basel to agree to lower the Standardised Approach risk-weight for low-LTV mortgages very substantially, from 35% to 20% for firms on standardised. MREL, set by the Bank as Resolution Authority, is set to ensure that a bank in resolution can meet going concern regulatory capital standards, so any change in regulatory capital standards will automatically be reflected in MREL.
According to the World Development Report of the United Nations, of the world’s 6 billion people, 2.8 billion (almost half) live on less than two dollars a day, and 1.2 billion (a fifth) live on less than a dollar a day. Also, the average income in the richest 20 countries is 37 times the average in the poorest 20, a gap that has doubled in the past 40 years. Hence, the distribution of global gains is extraordinarily unequal. Worldwide inequality persists even on the socio-human front. Although in general, human conditions have improved more in the past century than in the entirety of previous history, particularly in health and technological capabilities, several inequalities still exist. For example, in the poorest countries, only 4 out of 5 children live to celebrate their fifth birthdays, while in rich countries this ratio is over 99 per cent. While in rich countries fewer than 5 per cent of all children under five are malnourished, in poor countries as many as 50 per cent are. Hence, there is a huge imbalance and inequality in distribution of socio-economic gains as well. In this context, it is also heartening to note that strategies of reducing poverty have evolved over the past several decades in response to broadened understanding and rethinking of the complexity of development. As we are aware, in the 1950s and 60s, many economic and political planners viewed large investments in physical capital and infrastructure as the primary means of development.