Metro Bank suspends its pursuit of risk models approval

According to the Financial Times, the UK-based challenger bank has discreetly halted efforts to convince the Bank of England to permit the use of its internal calculations for risk modelling. This decision follows an incident from October 2023, when concerns over delays in the initiative triggered a decline in Metro Bank's share price. At the time, the bank managed to stabilise its position through an urgent GBP 925 million funding deal. While Metro Bank remained reticent about the status of its five-year campaign to adopt sophisticated models for reduced capital charges on mortgages, the Financial Times reports that resources for the project were recently dialed down as part of a broader initiative to cut staff. 

Metro Bank's bid to utilise internal models garnered attention, with potential gains hinging on approval from the Bank of England's Prudential Regulation Authority (PRA). The bank sought alignment with larger peers using internal models to demonstrate lower risk in mortgage loans compared to standardised frameworks set by the Basel Committee on Banking Supervision. However, PRA supervisors expressed skepticism about the data adequacy of newer banks for predicting loan losses, resulting in more conservative directives for such banks lacking sufficient proprietary data. 

Important resources for the project were cut amid wider staff reductions, casting doubt on Metro Bank's ability to meet regulatory timelines, including a mid-January commencement for a governance self-assessment of its models. This delay could potentially impact the timeline for extending internal models to other business segments, such as commercial lending, where Metro Bank initially planned to submit an application in 2025.

Metro Bank’s official stance

At the time of writing, Metro Bank's official position is that the internal model application is still progressing, and no conclusive decision has been made by the board. However, the board retains the option to proceed with the application, though no specific details about the nature of the progression were provided. 

This development follows recent announcements by Metro Bank regarding job cuts and a reassessment of its distinctive seven-days-a-week opening policy, part of broader efforts to reduce its annual cost base by GBP 50 million through measures such as automation and improved efficiency.