On May 26, the Financial Policy Committee published the final UK
framework for the Systemic Risk Buffer for ring- fenced banks and
large building societies (i.e. those that will be subject to the UK
ring-fencing rules from 2019 with assets over £25 billion).
The SRB, a discretionary buffer under the EU Capital Requirements
Directive, aims to mitigate and prevent long-term non-cyclical
macro-prudential or systemic risk.
The SRB rate will be calibrated according to a firm's total
Risk-Weighted Assets so that firms with RWA: (i) less than
£175 billion will have a 0% SRB; (ii) between £175 and
£320 billion will have a 1% SRB; (iii) between £320 and
£465 billion will have a 1.5% SRB; (iv) between £465
and £610 billion will have a 2% SRB; (v) between £610
and £755 billion will have a 2.5% SRB; and (vi) over
£755 billion will have a 3% SRB.
The Prudential Regulation Authority is responsible for
implementing the SRB and will consult later this year on its
proposals for this. The PRA must decide upon the basis of
application of the SRB—individual, sub-consolidated or
consolidated. In October 2015, the PRA consulted on implementation
of the ring-fencing rules and proposed a sub- consolidated basis
where a ring-fenced sub-group is in place. In addition to choosing
the level of application, the PRA must apply the FPC's
methodology and set a buffer rate. However, the regulator may
exercise its judgment when setting the SRB rate for individual
firms and may also waive the SRB. The FPC has recommended that the
PRA ensures that there is sufficient capital within a consolidated
group that includes a ring-fenced bank to address both global and
domestic systemic risks.
The PRA will apply the SRB to individual firms from 2019, which
is when the ring-fencing rules will become applicable. The PRA is
expected to publish its policy statement, final rules and
supervisory statements on the ring- fencing requirements by
Firms subject to the SRB will also be subject to a 3% minimum
leverage ratio requirement as well as an additional leverage ratio
buffer of 35% of the applicable SRB rate. The SRB is expected to
add about 0.5% of RWAs to the equity requirements of UK systemic
The European Commission's Regulation on indices used as financial benchmarks in financial instruments and financial contracts forms part of the EU's response to a series of high profile investigations in recent years...
The Prudential Regulation Authority's (PRA) consultation paper on "Refining the PRA's Pillar 2A capital framework" (CP3/17) introduces revisions to the assessment of capital requirements for credit risk.
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