PRA decided to maintain the Systemic Risk Buffers of firms at the rate set in December 2019 for a further year until December 2022, with no rate changes taking effect until January 2024. This decision has been taken, with the support of the Financial Policy Committee (FPC), in response to the economic shock from COVID-19 pandemic. As part of the implementation of the revised Capital Requirements Directive (CRD5), the CRD IV Systemic Risk Buffer will be replaced by the Other Systemically Important Institutions (O-SII) buffer on December 29, 2020. The O-SII buffer will be set at the same rate as the current Systemic Risk Buffer of firms.
PRA is acting now to offer lenders more certainty over their future capital requirements. This decision is relevant only to ring-fenced bodies and large building societies that will be subject to the O-SII buffer. PRA will now reassess O-SII rates of firms in December 2022, based on balance sheet positions at the end of 2021. Scheduling the next reassessment of O-SII buffer requirements for December 2022 at the earliest will aid firms in their capital planning by taking pressure off end-2020 balance sheets (on which the December 2021 reassessment would have been based). Any decision taken in December 2022 on O-SII rates would take effect from January 2024 in line with its policy. PRA also reiterated its expectation that all elements of capital and liquidity buffers of banks can be drawn down as necessary to support economy through this shock. This is in line with the PRA commitment, in April 2020, to consider the growth of balance sheets of firms in context of the pandemic and the extent to which the balance sheets are temporarily inflated.
Keywords: Europe, UK, Banking, Systemic Risk Buffer, Systemic Risk, O-SII, CRD5, COVID-19, Regulatory Capital, Basel, PRA
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