PRA Proposes to Update the Pillar 2 Capital Framework for Banks
PRA is proposing (CP5/19) to update the Pillar 2 capital framework to reflect continued refinements and developments in setting the PRA buffer (Pillar 2B). The proposals cover hurdle rate in stress, buffer interactions and usability, the risk management and governance assessment, updating benchmarks to assess Pillar 2A credit risk, and corrections to certain minor drafting errors. Comment period on the consultation ends on June 13, 2019 and PRA proposes to implement the amendments by October 01, 2019.
To implement the changes in the consultation, PRA proposes to update the following:
- Statement of Policy on PRA’s methodologies for setting Pillar 2 capital (Appendix 1)
- Supervisory statement (SS31/15) on Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) (Appendix 2)
- SS6/14 on implementing the Capital Requirements Directive (CRD IV) provisions on capital buffers. (Appendix 3)
CP5/19 is relevant to PRA-authorized banks, building societies, and PRA-designated investment firms. The purpose of these proposals is to bring greater clarity, consistency, and transparency to the capital-setting approach of PRA. In promoting a greater level of transparency, PRA seeks to promote financial stability, the safety and soundness of PRA-authorized firms, and facilitate more informed and effective capital planning for banks.
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Comment Due Date: June 13, 2019
Keywords: Europe, UK, Banking, Basel III, Pillar 2, Capital Framework, Credit Risk, CRD IV, Pillar 2B, CP5/19, SS31/15, SS6/14, ICAAP, SREP, PRA
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