PRA poses alternative approach to bank capital requirements

PRA CEO, Sam Woods, delivered a speech at City Week 2022 in which he set out “a radical, alternative approach” to bank capital requirements.

The proposed approach would involve:

• a single capital buffer calibrated to reflect both micro-prudential and macro-prudential risks;
• a low minimum capital requirement to maximise the size of the buffer;
• a “ladder of intervention” based on judgement for firms who enter their buffer;
• all requirements being met with common equity; and
• a mix of risk-weighted and leverage-based requirements.

Mr Woods suggested that such approach would only be successful if it is based on strong, common international standards.