RWA Ratios and Requirements Flashcards
(29 cards)
What is the CET1, Tier 1 and Total regulatory minimum?
CET1 = 4.5%
Tier 1 = 6%
Total Capital = 8%
What is MREL?
MREL is the minimum amount of equity of subordinated debt a firm must maintain to support an effective resolution.
To count as MREL, it must meet certain conditions to ensure it could support a resolution
What is the MREL regulatory minimum for RWA calculated?
Required to meet the higher of:
(i) two times the sum of Pillar 1 and Pillar
2A of RWAs;
and (ii) 6.75% of leverage exposures
What is the MREL reg min for the Leverage ratio?
6.75%
or
2x Leverage Requirement
How can the MREL requirement be reduced?
Can be reduced by multiplying by the scalar given by the regulator
What entities is the scalar given to?
BBPLC and BUK
What is the default scalar for non-ring fenced banks (e.g. BBPLC)
75%
What is the default scalar for ring fenced banks (BUK)
90%
What is the Tier 1 Ratio measuring?
(CET1 + AT1) / RWAs
What is the Total Capital Ratio measuring?
(CET1 + AT1 + T2) / RWAs
What is the MREL ratio measuring?
(CET1 + AT1 + T1 inc. amortization adj. + T3) / RWAs
What is the purpose for the scalar?
The scalar is designed to reduce the capital required to be held as a concession to cover intravenous exposures and other quirks which will not affect the overall group
Summarize the P2A ratio
The P2A ratio is set annually by the regulator in a letter (VREQ) and is designed to capture other risks outside of those in the regulatory minimum (Pillar 1 RWAs)
The risks include pensions
What risks are the Pillar 1 RWAs designed to capture?
Pillar 1 governs the calculation of RWAs for credit, market, and operational risks
How is the Pillar 2A decided?
Quantification is based off the ICAAP
What is the Pillar 2B?
A buffer set about the MDA to give the regulator advance notice of a risk of MDA breach
Also known as the PRA buffer.
Breach of the PRA buffer required notification to the regulator but there is no automatic restrictions on distributions
How is the PRA buffer set?
A bit of a black box. The PRA suggest it includes several things:
- Firm’s Leverage ratio
- Firm’s Tier 1 and total capital ratios
- Risks associated with double leverage
- The extent to which potentially significant risks are not captured fully as part of the stress tests
Stress test is meant to be a large part of it
What is the Pillar 2A buffer made up of?
(CET1, Tier 1, MREL)
56.25% CET1
75% Tier 1
(200%* MREL scalar) MREL
What is the CCB?
The CCB is the Capital Conservation Buffer
How much is the CCB?
The Capital Conservation Buffer is fixed at 2.5% of RWAs
What does the CCB need to be met by?
100% CET1
What is the CCyB
Countercyclical Buffer
What does the CCyB need to be met by/
100% CET1
What is the idea behind the CCyB
The idea is that the buffer is held to ensure banks hold capital is reserve, in the event of a cyclical economic downturn the buffer is released by regulators increasing lending ability and stimulating the economy
