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Home > Prudential Regulation Authority > Consultations by the FPC and PRA on changes to the UK leverage ratio framework relating to the treatment of claims on central banks – CP11/17
 

Consultations by the FPC and PRA on changes to the UK leverage ratio framework relating to the treatment of claims on central banks – CP11/17

27 June 2017

Background

This document contains two consultations. The first consultation sets out the Financial Policy Committee’s (FPC) proposed Recommendation to the Prudential Regulation Authority (PRA) to exclude claims on central banks from the leverage exposure measure in the UK leverage ratio framework; and compensate for the resulting reduction in capital required by the leverage ratio framework, by increasing the minimum requirement from 3% to 3.25%.

The second consultation (Consultation Paper 11/17) sets out the PRA’s proposals for implementing the FPC’s proposed Recommendation – should it be adopted by the FPC.

These consultations are relevant to PRA-regulated banks and building societies with retail deposits equal to or greater than £50 billion on an individual or a consolidated basis.

The proposals aim to ensure that the leverage ratio does not act as a barrier to the effective implementation of any monetary policy action that leads to an increase in central bank reserves.  They could also increase the financial sector’s ability to cushion shocks to the financial system and the provision of credit to the real economy by drawing on central bank liquidity facilities as necessary. 

Summary of proposals

The FPC proposes to recommend to the PRA that its rules on the leverage ratio:

(i) exclude from the calculation of the total exposure measure those assets constituting claims on central banks, where they are matched by deposits accepted by the firm that are denominated in the same currency and of identical or longer maturity; and
(ii) require a minimum leverage ratio of 3.25%.

Central bank claims for these purposes include reserves held by a firm at the central bank, banknotes and coins constituting legal currency in the jurisdiction of the central bank, and assets representing debt claims on the central bank with a maturity of no longer than three months. 

The FPC consultation seeks feedback on the proposed FPC Recommendation to the PRA.

In response, should the FPC’s Recommendation be adopted, the PRA proposes to amend the PRA Rulebook and Supervisory Statement (SS) 46/15 to:

(i) align them with its July 2016 modification by consent to exclude central bank claims matched by deposits in the same currency and of identical or longer maturity from the definition of the total leverage exposure measure in the UK leverage ratio framework;
(ii) increase the minimum leverage ratio requirement from 3% to 3.25% of total exposures; and
(iii) align the UK leverage ratio reporting and disclosure requirements to the proposed definition of the total exposure measure and 3.25% minimum leverage ratio requirement. 

The PRA seeks feedback on the its proposed approach to implementing the proposed FPC Recommendation to the PRA.

Responses

Comments on the proposed FPC Recommendation set out in Section 2 (pages 7 to 12)  and on how the PRA would implement the Recommendation set out in Section 3 (pages 13 to 26) may be included in a single response.  All comments should be emailed to leverageratiochanges@bankofengland.co.uk by Tuesday 12 September 2017.

Consultation paper

Consultations by the FPC and PRA on changes to the UK leverage ratio framework relating to the treatment of claims on central banks - PRA CP11/17

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