The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023. This decision is relevant only to the ring-fenced banks and large building societies that will be subject to the O-SII buffer. The Financial Policy Committee (FPC) and PRA took this decision in response to the economic shock from COVID-19 pandemic. In addition, FPC published a report that complements its financial stability report and sets out its views on key financial stability issues in UK. The report accompanies a summary and record of the FPC meeting that was held on September 23, 2021, with the next policy meeting of FPC expected to be in November 2021.
As stated in the meeting record, FPC expects banks to use all elements of their capital buffers, as needed, to support the economy through recovery. To support bank lending to households and businesses as the economy recovers, FPC is maintaining the UK Countercyclical Capital Buffer (CCyB) rate at 0%. FPC has previously stated that it expects to maintain a 0% UK CCyB until at least December 2021. In line with the standard implementation period, any subsequent increase would not be expected to take effect until the end of 2022 at the earliest. FPC will also consult on a proposal to change the metric used to determine O-SII buffer rates to exclude central bank reserves, effective from the 2023 PRA assessment of individual firm buffer rates. FPC also welcomes the intention of PRA to continue to freeze O-SII buffer rates until that point.
An initiative that FPC already has in place is the Recommendations to limit a deterioration in the mortgage underwriting standards or a rapid build-up in the share of highly indebted households. FPC observes that the corporate debt vulnerabilities in UK have increased moderately during the pandemic and is due to finalize its review of the calibration of its mortgage market Recommendations in December 2021. The BoE communication also highlights the continued growth in cryptoassets and the associated markets and services, despite which such assets are still believed to represent limited direct risks to the stability of the financial system in UK. However, regulatory and law enforcement frameworks, both domestically and at a global level, need to keep pace with developments in these fast-growing markets to manage risks and maintain trust and integrity in the financial system. In the policy meeting statement, FPC also emphasizes that market participants should use the most robust alternative benchmarks available in transitioning away from use of LIBOR to minimize future risks to financial stability.
Keywords: Europe, UK, Banking, O-SII, Regulatory Capital, Basel, COVID-19, Systemic Risk, Financial Stability, CCyB, Cryptoassets, LIBOR, Interest Rate Benchmarks, FPC, PRA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticlePRA and FPC Finalize Changes to Leverage Ratio Framework in UK
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.
The Federal Deposit Insurance Corporation (FDIC) issued supplemental instructions for the Consolidated Reports of Condition and Income—that is, Call Reports FFIEC 031, FFIEC 041, and FFIEC 051—for the September 30, 2021 reporting date.