Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to every firm that is a UK bank or a building society that, on the firm’s last accounting reference date, had retail deposits equal to or greater than £50 billion either on:

1. (1) an individual basis;
2. (2) if the firm is a parent institution in a Member State, on the basis of its consolidated situation; or
3. (3) if the firm is controlled by a parent financial holding company in a Member State or by a parent mixed financial holding company in a Member State and the PRA is responsible for supervision of that holding company on a consolidated basis under Article 111 of the CRD, on the basis of the consolidated situation of that holding company.

1.2

In this Part, the following definitions shall apply:

capital plan

means the plan described in Chapter 6.

countercyclical leverage ratio buffer

means the amount of common equity tier 1 capital a firm must calculate in accordance with 4.1 and 4.2.

deposit

has the meaning given in 30, Part 1, Annex V (Reporting on financial information) for the purposes of the European Banking Authority’s Implementing Technical Standards amending the Commission’s Implementing Regulation (EU) No 680/2014 on supervisory reporting under Regulation (EU) No 575/2013 of the European Parliament and of the Council.

FPC

means the Financial Policy Committee of the Bank of England.

leverage ratio

means a firm’s tier 1 capital divided by its total exposure measure, with this ratio expressed as a percentage.

retail deposit

means deposits from “households” as defined in 35(f), Part 1, Annex V (Reporting on financial information) for the purposes of the European Banking Authority’s Implementing Technical Standards amending the Commission’s Implementing Regulation (EU) No 680/2014 on supervisory reporting under Regulation (EU) No 575/2013 of the European Parliament and of the Council.

tier 1 capital

has the meaning given by Article 25 of the CRR except that:

(1) an additional tier 1 capital instrument can only be counted as tier 1 capital if it either:

(a) converts into common equity tier 1 capital; or

(b) writes down,

when the common equity tier 1 capital ratio of the firm falls below a level equal to either:

(a) 7%; or

(b) a level higher than 7%,

as specified in the provisions governing the instrument; and

(2) instruments that qualify for grandfathering under Article 483 of the CRR can be counted as tier 1 capital.

total exposure measure

has the meaning given by Article 429(4) of the CRR, as amended by the Commission Delegated Regulation (EU) 2015/62.

1.3

Unless otherwise defined, any italicised expression used in this Part and in the CRR has the same meaning as in the CRR.

2.1

A firm that is not a member of a consolidation group in relation to which 2.2 or 2.3 applies must comply with this Part on an individual basis.

2.2

A firm that is a parent institution in a Member State must comply with this Part on the basis of its consolidated situation.

2.3

A firm that is controlled by a parent financial holding company in a Member State or a parent mixed financial holding company in a Member State for which the PRA is responsible for supervision on a consolidated basis under Article 111 of the CRD must comply with this Part on the basis of the consolidated situation of that holding company.

3.1

A firm must hold sufficient tier 1 capital to maintain, at all times, a minimum leverage ratio of 3%.

3.2

For the purposes of complying with 3.1, at least 75% of the firm’s tier 1 capital must consist of common equity tier 1 capital.

4.1

A firm must calculate a countercyclical leverage ratio buffer of common equity tier 1 capital equal to:

1. (1) the firm’s institution-specific countercyclical capital buffer rate multiplied by 35% with the product expressed as a percentage rounded to the nearest tenth of a percentage; multiplied by
2. (2) the firm’s total exposure measure.

4.2

A firm must not count common equity tier 1 capital that is maintained for the purposes of 3.1 towards the calculation in 4.1.

5.1

A firm must notify the PRA immediately if, at any time, it does not hold, or is likely not to hold, an amount and quality of capital that is:

1. (1) necessary to comply with 3.1; and
2. (2) equal to or greater than its countercyclical leverage ratio buffer.

6.1

When a firm is required to make a notification to the PRA under rule 5.1(2), it must prepare a capital plan and submit it to the PRA no later than 5 business days after the firm identified that the notification was necessary.

6.2

The capital plan must include the following:

1. (1) measures to secure that the amount of the firm’s common equity tier 1 capital is equal to or greater than the firm’s countercyclical leverage ratio buffer; and
2. (2) a plan and timeframe for the measures outlined for the purposes of rule 6.2(1).