Skip to main content
  • This website sets cookies on your device. To find out more about how we use cookies please refer to our Privacy and Cookie Policy. By continuing to use the site, we’ll assume that you are content for us to set these on your device.
  • Close
Home > Prudential Regulation Authority > Residential mortgage risk weights – PS13/17
 

Residential mortgage risk weights – PS13/17

19 June 2017

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback on responses to Consultation Paper (CP) 29/16 ‘Residential mortgage risk weights’.  The CP set out proposed changes to the calculation of risk-weighted capital requirements in relation to residential mortgage portfolios.

This PS is relevant to banks and building societies that use the Internal Ratings Based (IRB) approach to calculate credit risk capital requirements for residential mortgages.
This PS contains the final amendments to Supervisory Statement (SS) 11/13 ‘Internal Ratings Based (IRB) approaches’.

Following consideration of respondents’ comments, the PRA has made several changes to the draft amendments to the SS contained in Appendix 1 of the CP. These changes are explained in Chapter 2. The changes extend the timetable for firms to meet the new expectations, amend the definition and formulation of cyclicality, clarify the application of the cyclicality cap to historical modelling, and emphasise the PRA expectation that firms should use margins of conservatism where there are low historical data.

In line with the approach adopted in the CP, the PRA has also decided to re-number paragraphs in the SS which follow inserted and deleted paragraphs.

The PRA does not consider that the changes made to the proposals contained in the CP are significant enough to have any additional material impact on firms, and so has not provided an updated cost benefit analysis.

Feedback on consultation responses

The PRA received nine responses to CP29/16. Most respondents supported the broad aim of the proposals, but a number of issues were raised and some sought greater clarity on certain aspects of the PRA’s revised expectations. Specific areas where the PRA has amended the proposals are detailed in Chapter 2 of the PS.

Policy statement

Residential mortgage risk weights – PS13/17

Appendices

  1. Supervisory Statement 11/13 UPDATE ‘Internal Ratings Based (IRB) approaches’
  2. Stylised example of the application of the cyclicality cap
Share