General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 12, 2018

BoE published a statement providing details on two changes to the way hurdle rates are calculated in the annual stress test. These changes are only relevant to firms under the Capital Requirements Regulation (CRR). In its document on the key elements of the 2018 stress test, which was published in March 2018, BoE had noted its intention to change the way hurdle rates are calculated in the annual stress test in four ways.

The two changes on which the statement provides details are as follows:

  • Hurdle rates will incorporate buffers to capture domestic systemic importance as well as global systemic importance.
  • The calculation of minimum capital requirements incorporated in the hurdle rates will more accurately reflect how they would evolve in a real stress.

The Systemic Risk Buffer (SRB) increases the capacity of certain UK systemic banks to absorb stress, reflecting their significance for the domestic economy. Beginning in 2019, SRB rates will be set for ring-fenced banks (RFB) and large building societies by PRA. For the purpose of the 2018 stress test, in calculating these uplifts to firms’ hurdle rates, PRA will assume the following SRB rates for the SRB institutions: 1% for Barclays, 1% for HSBC, 2.5% for Lloyds Banking Group, 1% for Nationwide, 1.5% for RBS, and 1% for Santander UK. These are assumed rates for the concurrent stress-test purposes only. Actual SRB rates for affected firms will be determined and published for the first time in 2019.

The annual stress test uses a risk-weighted hurdle rate, including Pillar 2A, which is a minimum capital requirement applied to cover a range of risks not (or not adequately) captured in Pillar 1. In the previous stress tests, the Pillar 2A element of the hurdle rate had been set as a constant share of risk-weighted assets over the five-year stress horizon. To ensure that the Pillar 2A requirements in the 2018 stress test more closely reflect the probable impact of stress on the risks captured in Pillar 2A, the Prudential Regulation Committee (PRC) has developed an approach in which each Pillar 2A risk component scales with a simple metric. This approach will preserve the current simplicity in the calculation of hurdle rates. These scaling bases are not intended to be forward guidance on how PRA will set Pillar 2A requirements in such a scenario; rather, they provide a simple way to ensure Pillar 2A requirements in the stress test more closely reflect the probable impact of the stress on the risks captured in Pillar 2A.

 

Related Links

Keywords: Europe, UK, Banking, Systemic Risk Buffer, Pillar 2A, Stress Testing, Stress Test 2018, Hurdle Rates, BoE

Related Articles
News

FASB Issues Minor Improvements to Financial Instruments Standards

FASB issued an Accounting Standards Update (ASU No. 2019-04) that clarifies and improves areas of guidance related to the recently issued standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825).

April 25, 2019 WebPage Regulatory News
News

APRA Grants License to New Authorized Deposit-Taking Institution

APRA announced that it has granted Judo Bank Pty Ltd a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

April 24, 2019 WebPage Regulatory News
News

BoE Report on Evaluation of Approach to Concurrent Stress Testing

BoE published a report on the evaluation, by the Independent Evaluation Office (IEO), of the effectiveness of the approach of BoE to concurrent stress testing.

April 24, 2019 WebPage Regulatory News
News

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 22, 2019 WebPage Regulatory News
News

FDIC Specifies Submission Timeline for FFIEC 031, 041, and 051 Reports

FDIC published the financial institution letters (FIL-21-2019 and FIL-22-2019) that offer guidance on submission of Call Reports FFIEC 051, FFIEC 041, and FFIEC 031 for the first quarter of 2019.

April 19, 2019 WebPage Regulatory News
News

US Agencies Propose to Revise Call Reports FFIEC 031, 041, and 051

US Agencies (FDIC, FED, and OCC) proposed to revise and extend, for three years, the Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

April 19, 2019 WebPage Regulatory News
News

US Agencies Propose to Amend Rule on Supplementary Leverage Ratio

US Agencies (FDIC, FED, and OCC) are proposing to revise the capital requirements for supplementary leverage ratio, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

April 18, 2019 WebPage Regulatory News
News

EIOPA Held InsurTech Roundtable on Use of Cloud Computing by Insurers

EIOPA had, on April 11, 2019, hosted its Fourth InsurTech Roundtable on the use of cloud computing by insurance undertakings.

April 17, 2019 WebPage Regulatory News
News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News
News

HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%

HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.

April 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2957