Andrew Tyrie MP, Chairman of the Treasury Committee, has published correspondence from BoE’s Governor, Mark Carney, in relation to a disagreement between Sir John Vickers, Chair of the Independent Commission on Banking (ICB), and the Financial Policy Committee (FPC) over the implementation of the systemic risk buffer, as well as the wider framework for bank capital. Mr Carney’s letter makes six key points when addressing the main concerns highlighted by Sir John:

  • FPC’s framework delivers higher common equity capital for ring-fenced banks than was recommended by ICB;
  • FPC’s framework requires significantly more common equitv than proposed by the ICB report;
  • FPC’s view takes into account BoE proposals for total loss absorbency, which would result in much higher overall requirements than recommended by ICB for banking groups;
  • FPC proposes to make greater use of macroprudential buffers than envisaged by ICB;
  • FPC has adjusted the original ICB proposals for the systemic risk buffer for ring-fenced banks to take into account banks’ sizes and to disincentivise systemic banks from growing further; and
  • BoE has improved other aspects of the capital framework, including enhancements to risk weight measurements that were not envisaged by ICB.

(Source: Treasury Committee publishes systemic risk buffer dispute)