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Barclays: Home Is Where Your Regulatory Costs Are the Lowest

Wednesday, 30 Mar 2011 | 11:22 AM ET
Barclay's Bank
AP
Barclay's Bank

Barclays is considering moving its global headquarters from London to New York.

Why?

The regulatory capital requirements are higher in the U.K.

The Wall Street Journal this morning reported that Barclays has been meeting with U.S. financial regulators to discuss the move. Barclays, of course, isn’t commenting.

Barclays named American Bob Diamond as CEO last year. Diamond had run Barclays Capital out of New York, which has included much of the business of Lehman Brothers since Barclays acquired the firm in 2008. Barclays Capital now commands 60 percent of the company's regulatory capital needs, even though it is less profitable than the retail side of Barclays.

The issue seems to be a proposal by U.K. banking regulators that would require banks to hold Tier 1 capital ratios above 10 percent. That’s far higher than the 7 percent that would be required under the Basel III agreements. Barclays no doubt fears that the U.K.’s higher capital requirements would put it at a competitive disadvantage to rival firms operating in lower capital requirement jurisdictions.

The Journal’s sources say Barclays will not make a final decision until the company has more clarity on the shape of U.K. and U.S. capital requirements.

If you’re cynical, you could say that Barclays is putting U.K. and U.S. regulators in competition with each other. U.K. regulators will no doubt feel pressure not to “lose Barclays” to the Americans, which could induce them to lower their capital requirements.

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