Banking sector regulatory capital - 2022 Q4

Key points

• The Common Equity Tier 1 (CET1) capital ratio for the UK banking sector increased by 0.4 percentage points on the quarter to 16.1%.
• The level of CET1 capital decreased by 3.7% on the quarter, from £490bn to £472bn.
• There was a 6.1% decrease in total risk-weighted assets on the quarter, from £3,132bn to £2,940bn.

Table A: Capital ratios and levels of capital and risk-weighted assets in the UK banking sector ^(a)

Chart 1: Capital ratios for the UK banking sector

Chart 2: Contributions to quarterly change in total capital ratio ^{(a) (b)}

Footnotes

• (a) See Further details about these data for information on the calculation of these contributions.
• (b) Data for all charts has been sourced from the banking sector regulatory capital data tables.

Table B: Risk-weighted assets by risk type (£ billions) ^(a)

Chart 3: Changes in risk-weighted assets by risk type

Comparison of published capital ratios for the UK and the EU

Capital ratios for the UK banking sector are published by a number of organisations; the Bank of England (BoE) and the International Monetary Fund (IMF). These ratios are not identical due to differences in firm coverage, use of transitional or endpoint capital, method of averaging and data revisions as explained below. Chart 4 shows a comparison of published capital ratios for the UK in the panel on the left with EU average ratios published by the EBA in the panel on the right. Table C provides descriptions of the underlying datasets and provides links to their definitions.

Chart 4: Comparison of published capital ratios for the UK and the EU^(a)

(a) From 1 January 2022, regulatory changes, designed to strengthen the capital framework, were introduced which impacted firms’ capital and risk-weighted assets. This included more prudent approaches to the calculation of risk-weighted assets and the treatment of intangible software assets for regulatory capital. These changes are described in more detail in the December 2021 Financial Stability Report.

From the 2022 Q4 release, Chart 4 has been amended to remove two of the data sets previously shown: Consolidated Banking Data and EBA Statistical Data. This reflects decisions to no longer produce these data, which has resulted in there not being enough data points available for the time series in the chart. Rationale for why these data are no longer produced can be found below:

• From Q1 2020, following the UK’s departure from the EU on 31 January 2020 (i.e. the beginning of the transition period), ECB ceased publication of consolidated banking data for the United Kingdom.
• Subsequent to UK’s withdrawal from the EU, the PRA have ceased to publish EBA aggregate statistical data ceased to publish post end-2020.

The effects of the differences in datasets and methodologies can be generalised as follows:

• Firm coverage – the BoE and the IMF publish capital ratios that represent averages of the total UK banking sector. While they all use the same data, the IMF publications are less timely and may include minor differences when compared with BoE data due to revisions. The Financial Policy Committee’s (FPC) indicators^{footnote [1]} cover major UK banks^{footnote [2]} only, rather than the total UK banking sector, and this generally has a downward effect on the ratio. The EBA publish tables showing average capital ratios for a sample of EU banks, which have been included in Chart 4 for comparison.
• Averaging method – the EBA Risk Dashboard presents key risk indicators as percentiles (medians shown in Table C) rather than as weighted means, which will tend to have an upward effect.
• Use of transitional or endpoint capital^{footnote [3]} – the use of endpoint capital will tend to have a slight downward effect on ratios, compared to those using transitional capital.
• Timing – both timeliness and frequency vary across datasets. The banking sector regulatory capital statistical release and FPC indicators are the timeliest.

Table C: Description of different published capital ratios for the UK

(a) From 2018, Basel III Tier 1 capital ratios reflect IFRS 9 transitional arrangements. This is also true of the CET1 series.

(b) Prior to the reporting period Q1 2020 the EU aggregates included the sample of UK banks (see EBA Risk Dashboard) in the time series. Following the UK’s departure from the EU on 31 January 2020 (i.e. the beginning of the transition period), for the reporting periods Q1 2020 to Q4 2020 the risk indicators for the sample of UK banks were excluded from the EU aggregates, but where appropriate the aggregated UK risk indicators were reported separately. From 1 January 2021, after the end of the transition period on 31 December 2020, the EBA risk dashboard ceased to include such data for UK banks.

Next release – 30 June 2023