Further details about banking sector regulatory capital data

The banking sector regulatory capital release shows developments in levels of capital and risk-weighted assets for the UK banking sector, capital ratios, and more detailed breakdowns of the movements in different tiers of capital and risk exposure types.

Publication dates

Data are published quarterly in March, June, September and December and are available from 2014 Q1. The data are not seasonally adjusted.

Data sources

The underlying data for the charts, tables and commentary in this publication are the European Banking Authority’s (EBA) Common Reporting (COREP) capital data, found in forms CA1 (own funds) and CA2 (own funds requirements). For further information on the basis of preparation of these data, please see the EBA’s documentation on Implementing Technical Standards on Supervisory Reporting.

Revisions to these data

All data are subject to revision if and when new data become available. This is in accordance with the criteria for incorporating and identifying revisions as set out in our Statistical Code of Practice, and in the context of the underlying Capital Requirements Directive IV (CRD IV) implementing technical standards. This revision policy will be subject to periodic review.

About CRD IV and COREP reporting

The definitions used throughout these notes for the different types of capital held by banks are those set out in CRD IV. CRD IV sets out the EU’s prudential rules for banks, building societies and investment firms and comprises two elements:

  • Capital Requirements Regulation (575/2013) (CRR) applies directly to EU firms in all member states and their competent authorities. This means that CRR provisions apply uniformly across all member states.
  • Capital Requirements Directive (2013/36/EU) (CRD), which must be enacted into national law in member states by their competent authorities. This means that when the CRD provisions are implemented into countries’ domestic law, they can vary across countries according to how the different competent authorities choose to implement the directive.

Article 99 of the CRR places a requirement on institutions to report Own Funds (regulatory capital) requirements. The precise format and frequency is set out in the Implementing Technical Standards on Supervisory Reporting (ITS) document, drafted by the European Banking Authority, and creates the European Common Reporting (COREP) harmonised reporting framework. This publication uses data submitted in COREP forms CA1 (Own Funds) and CA2 (Own Funds Requirements). Copies of these templates can be found in the Annexes to the ITS.

Definitions of capital

CRD IV imposes capital requirements with reference to different types, or ‘tiers’ of capital, which are referred to throughout the Banking Sector Regulatory Capital statistical release. The definitions of these are set out in full in the Capital Requirements Regulation. The most important terms for reading this statistical release are set out below:

  • Common equity Tier 1 (CET1) capital includes paid-up capital and its associated share premium accounts, retained earnings, accumulated other comprehensive income, other reserves, and funds for general banking risk. CET1 capital must be available to the institution for unrestricted and immediate use to cover risks or losses as soon as these occur.
  • Additional Tier 1 (AT1) capital consists of paid-up capital instruments and their associated share premium account. Typically, they are issued as hybrid debt instruments (contingent convertibles), which are able to be written down or converted to CET1 instruments upon the occurrence of a trigger event. This trigger event occurs when the institution’s CET1 capital ratio falls either below 5.125%, or a level higher than 5.125% if specified in the terms of the instrument. AT1 instruments must not have any features that could hinder the recapitalisation of the institution if the trigger event occurs.
  • Tier 1 capital for an institution is the sum of its CET1 and AT1 capital.
  • Tier 2 capital consists of capital instruments and subordinated loans and their associated premium accounts. The claim on the instrument or loan must be wholly subordinated to the claims of all non-subordinated creditors, and should not be secured or subject to a guarantee that enhances the seniority of its claim.
  • Total capital for an institution is the sum of its Tier 1 and Tier 2 capital.

For a more complete set of definitions, please see the full Capital Requirements Regulation (575/2013), articles 26-64.

Risk-weighted assets

CRD IV imposes capital requirements in relation to an institution’s total risk exposure amount. This is a regulatory concept that weights the accounting value of a firm’s assets and credit exposures according to an assessment of each exposure’s potential to suffer loss. Institutions are able to calculate risk-weighted exposures using either the Standardised Approach, or the Internal Ratings-Based approach (if permitted by their local competent authority). Both are described briefly below:

  • Standardised approach: under this approach, the risk-weighted exposure amount is the accounting value of the asset item’s exposure after credit risk adjustments. It is multiplied by a risk weight according to the exposure class of the original asset item. The risk weights are percentages which are standardised according to the class of the exposure, and in some cases the institution counterparty, to reflect the riskiness of that asset class. The risk weights for different asset classes are provided in the Capital Requirements Regulation. For more detail on calculating risk-weighted exposures under the standardised approach, see Chapter 2 of the Capital Requirements Regulation.
  •  Internal ratings-based (IRB) approach: under this approach, institutions calculate risk-weighted exposures by internally estimating parameters such as the exposure’s loss given default, exposure at default and default correlation across exposures within a class. For more detail on calculating risk-weighted exposures under the IRB Approach, see Chapter 3 of the Capital Requirements Regulation.

The values for risk-weighted exposures used throughout this publication are from COREP form CA2 (own funds requirements). The risk exposure groupings used in the publication were made according to the risk groupings within form CA2, and the total for each grouping is the sum of exposures for that grouping calculated using the Standardised Approach and the IRB Approach.

Capital requirements under CRD IV and the CRR

The CRR (Article 92) sets out minimum endpoint requirements for institutions’ own funds. These are as follows:

  • a CET1 capital ratio of 4.5%
  • a Tier 1 capital ratio of 6% and
  • a total capital ratio of 8%.

The CET1 capital ratio is the CET1 capital of the institution as a percentage of its total risk-weighted assets.

The Tier 1 capital ratio is the Tier 1 capital of the institution as a percentage of its total risk-weighted assets.

The total capital ratio is the total capital (own funds) of the institution as a percentage of its total risk-weighted assets.

The requirements set out above are referred to as Pillar 1 requirements. In addition, the UK’s capital framework also includes both Pillar 2 capital requirements that apply to individual banks and system-wide buffers of equity to absorb stress. More details on the capital framework are available in the supplement to the December 2015 Financial Stability Report: ‘The framework of capital requirements for UK banks’.

At present, the CET1 capital ratio and the Tier 1 capital ratio can be calculated on a transitional or an endpoint basis. The difference between these two bases is that using a transitional basis allows institutions to phase in deductions from CET1 over five years, increasing by 20% every year until 2019, and can phase out some instruments that do not meet CRR standards until 2022. In the publication, the CET1 capital ratios and Tier 1 capital ratios presented are based on transitional calculations of CET1 and Tier 1 capital, as reported by institutions in COREP forms CA1 (own funds) and CA2 (own funds requirements).

Additional notes on the basis of preparation

All metrics contained in this publication are calculated using the data submitted on the highest consolidation basis for each reporter via the GABRIEL reporting system.

All percentage figures either contained as averages in the tables, or as percentage change figures in the commentary, have been rounded to one decimal place.

Levels of capital and risk-weighted assets that are reported to us in currencies other than GBP are converted into GBP before aggregation. This conversion has an impact on levels of capital, risk-weighted assets and aggregated capital ratios. For example, if GBP depreciates against USD and a firm’s reporting currency is USD, the levels when converted to GBP will be higher than if exchange rates were stable. Aggregate ratios are impacted since increases in the levels of USD reporting firms lead to increased weightings given to these firms’ ratios.

In order to help users understand the relative effects of the changes in the various components, the percentage point change in the total capital ratio has been decomposed into separate contributions attributable to the changes in capital and risk-weighted assets (see Chart 2 in each release). Although this is not strictly possible for an indicator that is defined as the ratio of two components – it can only work for an indicator capable of being written as the sum of distinct terms – the error involved in this decomposition will be of second order in the numerator and denominator contributions, and may be regarded as acceptably small in typical situations. Since the residual error is no more than an artefact of the arithmetic, and in this case is found to be negligible and not visible if plotted in Chart 2, it has been omitted. This residual will be included in future releases if found to be larger than 0.1 percentage points. The Deutsche Bundesbank also adopts this approach to show the decomposition of changes in selected banks’ Tier 1 capital ratio.

This page was last updated 21 March 2018
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