The PRA published a policy statement PS13/17 that provides feedback on responses to consultation paper CP29/16 titled "Residential mortgage risk weights." CP29/16 had set out proposed changes to the calculation of risk-weighted capital requirements in relation to residential mortgage portfolios. The PRA also published an update to the supervisory statement SS11/13 titled "Internal Ratings Based (IRB) approaches."
PS13/17 is relevant to banks and building societies that use the internal ratings based (IRB) approach to calculate credit risk capital requirements for residential mortgages. It contains final amendments to the Supervisory Statement SS11/13 on IRB approaches. Following consideration of respondents’ comments, the PRA has made several changes to the draft amendments to the supervisory statement contained in Appendix 1 of the CP29/16. These changes are explained in Chapter 2. The changes extend the timetable for firms to meet the new expectations, amend the definition and formulation of cyclicality, clarify the application of the cyclicality cap to historical modeling, and emphasize the PRA expectation that firms should use margins of conservatism where there are low historical data.
The PRA received nine responses to CP29/16. Most respondents supported the broad aim of the proposals, but a number of issues were raised and some sought greater clarity on certain aspects of the PRA’s revised expectations. Specific areas where the PRA has amended the proposals are detailed in Chapter 2 of the policy statement. The PRA does not consider that the changes made to the proposals contained in the CP29/16 are significant enough to have any additional material impact on firms and, therefore, has not provided an updated cost-benefit analysis.
Keywords: Europe, UK, PRA, IRB, PS13/17, Residential Mortgages, Risk Weights, Banking
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