Capital and leverage ratios for major UK banks and building societies

Transcription

1 Supervisory Statement SS3/13 Capital and leverage ratios for major UK banks and building societies November 2013

2 Prudential Regulation Authority 20 Moorgate London EC2R 6DA Prudential Regulation Authority, registered office: 8 Lothbury, London EC2R 7HH. Registered in England and Wales No:

3 Supervisory Statement SS3/13 Capital and leverage ratios for major UK banks and building societies November 2013 Prudential Regulation Authority 2013

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5 Capital and leverage ratios November The purpose of this supervisory statement is to set out the Prudential Regulation Authority s (PRA s) expectations in relation to capital and leverage ratios for the eight major UK banks and building societies (referred to hereafter as firms ) from 1 January The eight firms are: 7. The PRA expects firms to meet the standards in this supervisory statement in addition to the requirements imposed on them by PRA rules and CRD IV. The PRA will publish rules and supervisory statements on its implementation of the CRD IV in December Barclays Co-operative Bank HSBC Lloyds Banking Group Nationwide Royal Bank of Scotland Santander UK Standard Chartered 2. Firms will be expected to meet 7% Capital Requirements Regulation (CRR) end-point definition of common equity Tier 1 (CET1) capital ratio, after taking into account any adjustments set by the PRA (see below). 3. Firms will also be expected to meet a 3% CRR end-point Tier 1 leverage ratio, after taking into account any adjustments set by the PRA. For the avoidance of doubt, additional Tier 1 (AT1) instruments may be included in the numerator and the CRR exposure measure should be used for the denominator. Further, the CRR exposure measure may be adjusted in order to avoid creating disincentives to facilitate central clearing for customers. (1) In relation to firms own cleared derivative trades subject to master netting agreements, the CRR exposure measure may be adjusted for cash variation margin received and posted. (2) This standard will be reviewed in 2014 once the Basel III and CRR leverage ratio definition is finalised. 4. At end-2013, the adjustments to CET1 capital should be those set by the PRA for the purposes of the capital shortfall exercise, updated only to eliminate any double counting where firms have increased provisions, made disposals or adjustments are now captured in Pillar 1 capital requirements. Once the firms meet the 7% CET1 and 3% leverage ratio (in both cases post adjustments communicated in June 2013 after any double counting has been removed), the need for and quantity of any adjustments will be established after having considered the responses on the discussion paper on stress testing. 5. The PRA expects firms to meet these standards at the level of the consolidated group from 1 January 2014 except where the PRA has agreed a plan with the firm to meet the standards over a longer time frame. 6. From 1 January 2014, upon the implementation of the CRR, the PRA will not monitor the capital position of firms using the definition of core Tier 1 capital communicated by the Financial Services Authority to the British Bankers Association by letter dated 1 May (1) In relation to derivative trades undertaken by the firm to facilitate customer central clearing through qualifying central counterparties (QCCPs), the CRR exposure measure may be adjusted in the following ways: a. initial margin received in cash from the client, provided it is segregated from the firm s own cash, does not have to be recognised; b. variation margin received in cash from the client can offset the positive mark-to-market exposure; and c. where the firm does not guarantee the QCCP performance to the client, the firm s exposure on the firm-to-qccp leg can be excluded from the CRR exposure measure. Variation margin received in cash from the QCCP, where the firm has guaranteed the performance of the QCCP to the customer, can offset the positive mark-to-market exposure. Any excess margin received and at the disposal of the firm may not be used to reduce any exposure. (2) a. Variation margin received in cash may reduce the positive mark-to-market exposure amount (if it has not already been reduced in the accounting framework). b. In the case of variation margin posted in cash, the firm may deduct the corresponding balance sheet receivables asset (if it has not already been deducted in the accounting framework).