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.

central bank claims

means the following exposures of a firm to a central bank, provided these are denominated in the national currency of such central bank:

1. (1) banknotes and coins constituting legal currency in the jurisdiction of the central bank;
2. (2) reserves held by a firm at the central bank; and
3. (3) any assets representing debt claims on the central bank with a maturity of no longer than 3 months.

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. (1) an additional tier 1 capital instrument can only be counted as tier 1 capital if it either:
1. (a) converts into common equity tier 1 capital; or
2. (b) writes down,
2. when the common equity tier 1 capital ratio of the firm falls below a level equal to either:
1. (a) 7%; or
2. (b) a level higher than 7%,
3. as specified in the provisions governing the instrument; and
4. (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, save that a central bank claim of a firm shall be netted off against a deposit accepted by the firm, provided that:

1. (1) the central bank claim and deposit are denominated in the same currency; and
2. (2) where applicable, the date of contractual maturity of the central bank claim is the same as, or is before, the date of contractual maturity of the deposit.

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.

2.1A

If this Part applies to a firm on an individual basis, the firm must comply with the rules in this Part to the same extent and in the same manner as it is required to comply with the firm’s obligations laid down in Part Seven of the CRR.

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 3.25%.

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).