BoE announces terms of leverage ratio review: BoE has announced the terms of reference for the review of the leverage ratio (LR) that the Financial Policy Committee (FPC) will undertake following the request of the Chancellor of the Exchequer in November 2013. The review will cover:
- the relative strengths and weaknesses of the LR when compared with risk-weighted measures;
- LR definition and design, whether it should be different for ring-fenced banks, and the merits of using it as a countercyclical tool;
- the case for the FPC to have direction powers over the LR;
- the impact of the LR on UK lending and GDP; and
- the state of international developments and whether to introduce the LR on a faster timetable than agreed internationally.
The decision on the appropriate level for the LR will be adopted at a later stage. (Source: LR Review – Terms of reference)
BoE publishes FPC meeting record: The record of the meeting FPC held on 19 March has been released. FPC made no new recommendations, but its deliberations address several prudential issues:
- by June, once FCA has made the necessary changes to its mortgage conduct rules, FPC could have the power to recommend the interest rates that must be used when carrying out the affordability assessments required as part of the Mortgage Market Review;
- in the context of the EU-wide stress test affecting four large UK banks later this year, PRA and FPC will incorporate additional elements to the UK scenario, to examine the resilience of UK banks to a housing market shock and to an increase in interest rates;
- FPC would like to start requiring firms to report and disclose their capital ratios using the standardised approach, once the Basel Committee completes its review of the standardised approach to credit risk in the course of 2015; and
- together with the calibration of microprudential tools and assessment of risks arising from market-based finance, other medium-term priorities will include the identification of Domestic Systemically Important Banks, setting the height of the ring-fence and the amount of loss-absorbency capacity, and the creation of protocols for staying derivatives.