Aug 13, 2013
August 2nd 2013 - The Prudential Regulation Authority (PRA) has published a consultation paper on changes to its rules required to implement the EU’s Capital Requirements Directive (CRD IV). These changes will affect banks, building societies and those investment firms which are regulated by the PRA. It does not affect insurance firms.
CRD IV is the EU package of rules and regulations which implements Basel III, the international regulatory framework for banks. The package is binding on all EU member states. It aims to address the problems that caused the financial crisis by increasing the level and quality of capital held by banks, enhancing risk coverage, expanding disclosure requirements and reducing procyclicality. CRD IV provides a basis for EU liquidity standards and introduces leverage disclosure requirements.
The PRA has already taken decisive action to ensure that the capital of major UK banks and building societies reflects expected future losses and more prudent calculation of risk weights, as recommended by the Financial Policy Committee in November 2012. In many areas, the UK capital regime for the banking sector and investment firms will remain broadly the same under CRD IV but there are a number of important changes which will affect UK firms. The PRA’s consultation paper sets out the detail of these changes and the transitional periods for firms to allow them to prepare for the new regime.
Andrew Bailey, Deputy Governor Prudential Regulation, Bank of England and Chief Executive Officer of the Prudential Regulation Authority commented:
“Well capitalised and resilient firms are crucial for ensuring financial stability and supporting UK growth. The PRA has already acted to increase both the amount and quality of capital held by firms, reflecting our determination to improve the stability of UK firms after the crisis. This has put UK firms in a good position to meet the new requirements whilst continuing to provide banking services and support lending to the real economy.”
CRD IV places greater emphasis on the highest quality of capital (known under CRD IV as Core Equity Tier 1) than the current regime and strengthens the criteria used to determine what can be used as CET1. The PRA supports this emphasis on high quality capital and has set out proposals in the consultation paper to ensure that this is reflected in the PRA’s implementation of CRD IV. The table below explains the new minimum Pillar 1 capital requirements for firms and when they apply.
Click here to read the full press release.
Re-disseminated by The Asian Banker