A senior regulator at the Bank of England has said that HSBC is right to consider moving its headquarters from London to Asia, given its duties to safeguard shareholder interests.
Andrew Bailey, head of the Bank’s Prudential Regulation Authority (PRA), said that the bank should assess the benefits of moving its base, which it regularly considered until 2012.
"We will obviously be in close contact with them because there are important issues for us," Mr Bailey told the Reuters Financial Regulation Summit.
"It is entirely natural that as an institution your shareholders should demand that you do this assessment. As a private organisation they should do it," he said.
HSBC, which moved its base from Hong Kong to the UK in 1993 when it bought Midland Bank, has recently revived its regular reviews of its headquarters. The bank said in 2012 that it had suspended these appraisals “indefinitely”.
Shares in the bank rose 2pc when the group said it was considering a move, despite the expense and regulatory headaches that such a major redomicile would create.
“We are saying: 'If you had a plain piece of paper and a business of this shape and range wher would you go?’,” HSBC's chief executive Douglas Flint said last month.
HSBC's discussion about moving comes at a time of broader regulatory changes for all of the biggest UK banks. Mr Bailey said many were making “quite big changes” to their business plans ahead of the new rules on ring-fencing retail operations from the investment banking arms.
British banks will be required to separate their businesses by 2019, under the reforms set out by the Vickers review in a bid to prevent a repeat of the 2008 financial crisis.
Mr Bailey said some of the banks, already overhauling their businesses to comply with bail-out requirements and post-recession strategy changes, were still considering which operations to retain within the ring-fence.
"Some of them are coming with quite big changes to their plans, because they've had a think about it and revised their view on wher their business model is headed," he said. "Their business models are adjusting so these are moving targets."
Banks are also grappling with new EU rules that are designed to regulate bonuses in the industry. Mr Bailey said institutions must change some pay deals to adhere to the controversial cap, which limits bonuses to no more than twice a person's fixed salary and bans the use of "allowances" to top up pay above this level.
"Many of them don't need to rip them up. They need to amend the terms," said Mr Bailey, who has previously criticised the scope of the new rules. "The effect is to make the allowances more fixed and the scope to withdraw them is that much more limited."
Mr Bailey said the European Banking Authority's crackdown will apply to bonuses for 2015. "It's a bad policy and it's got the wrong incentives," he said, noting that the rules could simply push up fixed pay, which is more difficult to recover through clawback provisions.
In a separate speech on Friday, Mr Bailey warned that fragile liquidity conditions would test markets in the coming years and potentially put UK financial stability at risk.
He said that risk-taking by asset managers in the so-called "shadow banking" sector could "wash back into and affect the critical functions performed by banks".
This could "destabilise the core of the system", warned Mr Bailey, a situation that could be exacerbated by the fact that dealers who acted as a "stabilising force" in times of stress had scaled back their activities markedly since the crisis.
"Underlying conditions in financial markets suggest that the current situation could be fragile," he said in a speech in Cambridge. "Shocks that might prompt large-scale asset disposals are of particular concern. The global asset management industry is both large in size in its own right and relative to the size of the commercial banking."
Mr Bailey said the "flash crash" in US Treasuries last October highlighted vulnerabilities in a system wher electronic platforms are increasingly used in major markets.
However, he pushed back against arguments that the lack of liquidity was due to tougher regulation. Mr Bailey highlighted that huge inventories of fixed income securities held by the primary dealers were amassed "from around 2003-04 onwards, reached a peak in 2008, and has then settled back to around the 2002 level over the last two years, or so.
"Looked at in this light, the increase in inventory capacity in the dealer community was ephemeral, reflecting the underpricing of risk, a weak capital regime and the subsidy provided to the major banks by implicit government guarantees. Dealers de-risked their balance sheets rapidly as the crisis hit, and this reminds us that their capacity and willingness to stand in the way of major market moves (akin to catching a falling knife) was always constrained," he said.
"And all of this happened before any new regulations were put in place. "I don’t accept that the fairly ephemeral position that emerged shortly before the crisis was fit for purpose or sustainable." The Bank of England is working with asset managers and the Financial Conduct Authority to assess strategies for managing liquidity. The Bank of England's bank stress tests this year will also examine the impact of a liquidity shock.
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