PRA decision on Systemic Risk Buffer Rates

This statement announces our decision to maintain firms’ Systemic Risk Buffer rates at the rate set in December 2019 for a further year until December 2022, with no rate changes taking effect until January 2024.
Published on 07 December 2020

Overview

In response to the ongoing economic shock from Covid-19 we have decided, with the support of the Financial Policy Committee (FPC), to extend our decision to maintain firms’ Systemic Risk Buffer (SRB) rates at the rate set in December 2019 for a further year. This decision follows our announcement in Aprilfootnote [1] that rates would be maintained at 2019 levels until December 2021.

On Tuesday 29 December 2020, as part of the implementation of Capital Requirements Directive (CRD) V, the CRD IV SRB will be replaced by the Other Systemically Important Institutions (O-SII) Buffer. The O-SII Buffer will be set at the same rate as firms’ current SRB buffer. The decision announced in this statement means we will next reassess firms’ O-SII rates in December 2022, based on balance sheet positions at end-2021.

We are acting now to give lenders greater certainty over their capital requirements moving forward. Scheduling the next reassessment of O-SII buffer requirements for December 2022 at the earliest will aid firms in their capital planning by taking pressure off end-2020 balance sheets (upon which the December 2021 reassessment would have been based). This is in line with our commitment in April to take into account the how firms’ balance sheets have grown in response to Covid-19 and the extent to which they are temporarily inflated.

In December 2022, we expect to set an O-SII rate consistent with our statement of policyfootnote [2] and the FPC frameworkfootnote [3]. In doing so, we will continue to take into consideration the evolution in firms’ balance sheets in response to Covid-19. Any decision on O-SII rates taken in December 2022 would take effect from January 2024 in line with our policy.

We also reiterate our expectation that all elements of banks’ capital and liquidity buffers can be drawn down as necessary to support the economy through this shock.

Scope

The decision is relevant only to RFBs and large building societies that will be subject to the O-SII Bufferfootnote [4].

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