Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Metro Bank has suspended its bid to ensure regulatory sign-off on risk models that it previously said would turbocharge profitability.
The UK challenger bank has quietly shelved work on its attempt to persuade the Bank of England to allow Metro to use its own internal calculations to model for risk, according to people familiar with the situation. Some added that the project would probably be abandoned as the possible benefits waned.
Metro’s attempt to use internal models became headline news in October when fears about delays to the initiative triggered a sharp fall in the bank’s share price, which was only stabilised by an urgent £925mn funding deal.
At the time, Metro would not say whether it was continuing with its five-year-old campaign to proceed to sophisticated models that would cut the capital charges for its mortgages. It currently uses models set by global regulators that are generally viewed to be more expensive for banks as they tend to be required to hold more equity.
Metro would make big gains if the BoE’s Prudential Regulation Authority allowed the lender to follow its larger rivals in using its own models to verify that their mortgage loans were less risky than the “standardised” risks implied by frameworks set by the Basel Committee on Banking Supervision.
But supervisors at the PRA have been sceptical about whether newer banks have enough data to anticipate losses on their loans, leading watchdogs to order banks to be more conservative if they do not have enough of their own data to build robust models.
“The margins of conservatism that have been imposed on the bank are so high that it is completely illogical to proceed from the standardised approach to the IRB/AIRB (mdoels) approach and a waste of time,” said one person familiar with Metro’s project.
He added that the UK challenger bank had recently cut key resources to the project, as part of a wider effort to slash 20 per cent of its staff, and that it was very unlikely it would be in a position to confront the timetable agreed with regulators for the project. This includes a mid-January start date for a “self assessment” of the governance around Metro’s models.
That would then affect the timing of the bank’s bid to use internal models for other parts of the business — including commercial lending, where it had aimed to submit an application in 2025.
The challenger bank’s chief risk officer and her team remain in their positions.
“As you would expect, the board regularly reviews the merits of the [internal model] application and its potential/expected benefits. The application is still progressing and no decision has yet been made by the board,” a Metro spokesperson said.
Metro would not explain what “progressing” involved.
The board could still infer to proceed with the application, according to a person familiar with the bank’s position.
The PRA declined to comment.
The news comes weeks after Metro announced job cuts and a review of the seven-days-a-week opening policy that differentiated it from legacy high street banks when it launched in 2010. Metro hopes that the measures, along with other efforts around automation and efficiency, will shave £50mn from its annual cost base.
