Monday, February 15, 2016
Author: David Schwartz J.D. CPA
On January 29, 2016, the Bank of England (B of E) issued a consultation paper laying out its proposed framework for the systemic risk buffer (SRB) to be applied to ring-fenced banks and large building societies holding more than £25 billion of retail and small and medium enterprise deposits. The proposals are intended to provide clarity to banks on how much capital they will be required to reserve in connection with the activities of their "ring-fenced" arms.
While the B of E acknowledged that the ring-fenced banks as a sector, which includes HSBC, Lloyds, Barclays and RBS, effectively are already in compliance with the new SRB requirement, the central bank reiterated the need for additional capital, and indicated that any extra capital requirement would be incremental, no more than 0.5 percent of the banking system's total risk-weighted assets. According to Deputy Governor, Financial Stability, Jon Cunliffe:
“These new rules will mean that large UK banks and building societies are more resilient to adverse shocks, enabling them to continue to lend to households and businesses even in times of stress. The financial crisis demonstrated the long-lasting damage that can be caused when large banks become distressed and have to cut back lending to the economy. These proposals are intended to reduce the risk of this happening again.”
The consultation sets out:
As proposed, the SRB will be applied to individual institutions by the Prudential Regulation Authority (PRA) and will be effective, like the ring-fencing rules, beginning in 2019.
Comments on the consultation are due by April 22, 2016, and B of E intends to finalise the framework promptly thereafter by May 31, 2016.