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Interesting piece in the FT on Wednesday, google for "UK’s financial regulators move to boost challenger banks", and it minded me to start a thread where all the Basel Committee on Banking Supervision Revisions to the Standardised Approach for credit risk stuff can live. A quotation from Andrew Bailey where he makes the argument that the current risk-weights are pushing the challengers into the "racier" end of the market and an allusion to the fact that in the past that has ended badly. It's interesting how the challenger banks got so balls deep in BTL so quickly, so now you have the ridiculous situation that Basel risk-weights which are, at least in part, supposed reduce the systemic threat from pro-cyclical lending into real estate are shaping up to form a systemic threat to our challenger banks (because they've bet the ranch on BTL). I think that reading between the lines is called for, but on balance the remarks attributed to Bailey in the piece are consistent with the Bank of England taking a pretty dim view of BTL and having their face set against it. In my reading Bailey seems to be suggesting that the challengers need to be allowed to compete with the big banks on prime lending, not that they need to be allowed to lend like idiots to anything with a 25% deposit and a heartfelt desire to be a landlord. Both in the immediate wake of the release of the consultation paper in December and to this day there has been no explicit statement from the Bank of England indicating that they are against fairly punitive risk-weights landing on BTL mortgage books. The refrain has always been that there need be no increase in capital requirements in the system as a whole, (but that is consistent with a trimming of capital requirements against some lending whilst making them more stringent for other classes of lending). At this stage there remain grounds for optimism that in due course BCBS risk-weights may put pressure on BTL mortgage rates.