By Huw Jones
LONDON (Reuters) - Foreign banks can operate as branches in Britain but only if they hold minimal deposits and meet other safeguards under new Bank of England (BoE) rules partly aimed at making it easier for Chinese wholesale banks to set up shop in London.
The new rules mark a formal change of tack by Britain whose regulators since the 2007-09 financial crisis have put pressure on all types of foreign bank branches to become subsidiaries that are more accountable to local supervisors.
Branches, unlike subsidiaries, do not have the cost of maintaining their own buffer of capital and liquidity, instead relying on the parent's resources.
The BoE's supervisory arm, the Prudential Regulation Authority (PRA), said in a statement on Friday that deposit-taking foreign banks that want to remain a branch must have less than 100 million pounds in account balances and fewer than 5,000 customers.
The new rules mean it will be easier for wholesale foreign banks from China and elsewhere, which cater to other financial institutions and large corporations rather than retail customers, to open non-deposit taking branches which would not face size limits.
Britain wants to encourage greater use of London as a hub for Chinese currency dealing, with the China Construction Bank selected in June to become the first clearing service for renminbi trading in the UK capital.
The bulk of foreign, deposit-taking branches in Britain had 10 to 99 million pounds in their accounts at the end of 2012, according to BoE figures.
There were only a handful of branches with more than 100 million pounds or more in deposits who may now have to convert into subsidiaries or withdraw from the market.
Under the new rules, all branches must also have an equally strict supervisor in their home country, insure any deposits with a UK scheme, and prove they can be wound up quickly in a crisis while maintaining access to any deposits.
"Where the PRA is satisfied of these factors, it will also need to have a clear and agreed split of prudential supervisory responsibilities with the home state supervisor," the PRA said.
"Where the PRA is not content, it will consider the most appropriate course of action, which could include refusing authorisation of a new branch or cancelling an authorisation of an existing branch."
Britain also wants to avoid having to compensate savers with deposits at a failing foreign bank as it had to with Icesave accounts run by a branch of Icelandic bank Landsbanki, which collapsed in 2008 during the global financial crisis.
Britain and the Netherlands, which found itself in the same situation in 2008, compensated thousands of Icesave customers and earlier this year filed a claim for $4.8 billion against Iceland to recover the money.
(Reporting by Huw Jones; Editing by Pravin Char)