2nd June 2017

BBA response to PRA’s consultation paper CP 3/17 Refining the PRA’s Pillar 2A capital framework

The BBA has responded to the PRA’s consultation on refining its Pillar 2a framework and supported its objective of smoothing out the perceived un-level playing field between banks using the internal ratings based (IRB) approach to modelling credit risk capital requirements and those that calculate it using the standardised approach (SA).

We encouraged the PRA to continue its efforts in the international arena to recalibrate the SA as part of the ‘finalising Basel III’ initiative and ensure that its new refined approach offered real capital reductions where the SA is overly conservative. We also suggested that the IRB risk weight tables be deconstructed into PD and LGD and welcomed the recognition of potential IFRS 9 effects for standardised approach banks reporting on IFRS, reminding the PRA that similar issues exist for IRB banks where the interplay between the maturity adjustment and expected credit loss is unclear.