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Home > Prudential Regulation Authority > Statement of Policy - The PRA’s methodologies for setting Pillar 2 capital UPDATED
 

Statement of Policy - The PRA’s methodologies for setting Pillar 2 capital UPDATED

29 July 2015
1 February 2017: Content on this page has been updated see:

Statement of Policy - The PRA’s methodologies for setting Pillar 2 capital UPDATE
 
For information only, the publication issued on 7 July 2016 and 29 July 2015 is available below.

Update: On 7 July 2016, this Statement of Policy was updated following publication of Policy Statement 20/16 ‘The implementation of ring-fencing: prudential requirements, intragroup arrangements and use of financial market infrastructures’ which included final ring-fencing rules and Supervisory Statement 8/16 ‘Ring-fenced bodies (RFBs)’. Specifically, paragraph 6.3 has been updated to include a footnote on the calculation of credit concentration risk for RFBs on a sub-consolidated basis. The updated SoP will take effect from 1 January 2019 and is available for information on the ‘Supporting materials – ring-fencing’ webpage.

This statement of policy sets out the methodologies that the Prudential Regulation Authority (PRA) uses to inform the setting of Pillar 2 capital for firms to which CRD IV (see note 1 below) applies.

Overview

Section I: Pillar 2A methodologies sets out the methodologies the PRA will use to inform the setting of a firm’s Pillar 2A individual capital guidance for credit risk, market risk, operational risk, counterparty credit risk, credit concentration risk, interest rate risk in the non-trading book (referred to as interest rate risk in the banking book (IRRBB)) and pension obligation risk.

Section II: Pillar 2B provides information on the purpose of the PRA buffer, how it is determined and how it relates to the CRD IV buffers. Section II also provides details on the PRA’s approach to tackling weak governance and risk management under Pillar 2B.

Firms are required by the Reporting Pillar 2 part of the PRA Rulebook, or may be asked, to submit data to inform the PRA’s approach to setting Pillar 2A individual capital guidance.

Note 1: The Capital Requirements Directive (2013/36/EU) (CRD) and the Capital Requirements Regulation (575/2013) (CRR), jointly ‘CRD IV’.

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