PRA Decides to Maintain O-SII Buffers for Another Year
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.
Related Links
Keywords: Europe, UK, Banking, O-SII, Regulatory Capital, Basel, COVID-19, Systemic Risk, Financial Stability, CCyB, Cryptoassets, LIBOR, Interest Rate Benchmarks, FPC, PRA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
PRA and FPC Finalize Changes to Leverage Ratio Framework in UKRelated Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
