At its meeting on 24 June, the Financial Policy Committee gave a Direction and agreed a Recommendation to the PRA to implement the leverage ratio framework for the major UK banks and building societies, agreed a replacement to an existing Recommendation on cyber risk and set the UK countercyclical capital buffer rate:
1. The FPC directs the PRA to implement in relation to each major UK bank and building society on a consolidated basis measures to:
- require it to hold sufficient Tier 1 capital to satisfy a minimum leverage ratio of 3%;
- secure that it ordinarily holds sufficient Tier 1 capital to satisfy a countercyclical leverage ratio buffer rate of 35% of its institution-specific countercyclical capital buffer rate, with the countercyclical leverage ratio buffer rate percentage rounded to the nearest 10 basis points;
- secure that if it is a Global Systemically Important Institution (G-SII) it ordinarily holds sufficient Tier 1 capital to satisfy a G-SII additional leverage ratio buffer rate of 35% of its G-SII buffer rate.
The minimum proportion of common equity Tier 1 that shall be held is:
- 75% in respect of the minimum leverage ratio requirement;
- 100% in respect of the countercyclical leverage ratio buffer; and
- 100% in respect of the G-SII additional leverage ratio buffer.
Common equity Tier 1 may include such elements that are eligible for grandfathering under Part 10, Title 1, Chapter 2 of Regulation (EU) No 575/2013 as the PRA may determine.
2. The FPC recommends to the PRA that in implementing the minimum leverage ratio requirement it specifies that additional Tier 1 capital should only count towards Tier 1 capital for these purposes if the relevant capital instruments specify a trigger event that occurs when the common equity Tier 1 capital ratio of the institution falls below a figure of not less than 7%.
3. The FPC recommends that the Bank, the PRA and the FCA work with firms at the core of the UK financial system to ensure that they complete CBEST tests and adopt individual cyber resilience action plans. The Bank, the PRA and the FCA should also establish arrangements for CBEST tests to become one component of regular cyber resilience assessment within the UK financial system.
4. The FPC set the countercyclical capital buffer rate for UK exposures at 0%.