Bank Of England Announces Measures To Promote Banking Resilience, Capital Certainty, Competition And Growth

The Bank of England (‘the Bank’) has announced a package of measures designed to maintain stability in the financial sector while offering new growth opportunities for mid-sized banks and building societies.

The Prudential Regulation Authority (the PRA) has today published a consultation on changes to its Basel 3.1 market risk rules – specifically the “Fundamental Review of the Trading Book” (FRTB).

The proposals will allow the PRA to deliver its commitment to implement the vast majority of Basel 3.1 (covering approximately 90% of risk-weighted assets in the UK) on 1 January 2027, while allowing time for greater clarity to emerge in other jurisdictions on their own implementation of the aspects most relevant for cross-border activities.

1 January 2027 will also be the proposed implementation date for the Strong and Simple capital regime. Taken together the changes mean UK firms of all sizes can benefit from greater risk-sensitivity and proportionality from that point.

Specifically, the proposed changes would:

Set the date for the introduction of the new internal model approach for market risk as 1 January 2028: firms with internal model permission today can continue to use their existing internal models until 31 December 2027;
Allow all other aspects of Basel 3.1 to proceed on 1 January 2027;
Allow Strong and Simple to proceed on 1 January 2027, allowing smaller firms to benefit from a more proportional regime that gives them greater room to grow.

In addition to these timing points, the proposal also makes minor changes to the FRTB to smooth its implementation. These include adding flexibility for investments in funds and introducing a permissions regime for capitalising complex risks, both under the standardised approach, in order to reduce operational burdens on firms and ensure capital requirements are appropriate.

The PRA has also announced prospective plans to make it easier for mid-sized banks to compete in the mortgage market.

The regulator will publish a Discussion Paper in mid-summer with options to help mid-sized banks to grow by adjusting some barriers to gaining permissions to build Internal Ratings Based Models for residential mortgages.

Sam Woods, CEO of the PRA and Deputy Governor for Prudential Regulation at the Bank of England, said:

“Today’s announcements will give certainty to firms of all sizes about the future capital framework, bring in a simpler regime for smaller banks, make it easier for mid-sized banks to scale up in the mortgage market, and allow an extra year for part of the implementation of new investment banking rules.”

The Bank has also published updates to the UK’s resolution framework. They reflect the Bank’s experience from the successful resolution of Silicon Valley Bank UK in 2023 and Parliament’s introduction of a new mechanism for bank recapitalisation that allows the Bank to use industry-financed funds to recapitalise a firm, providing a robust and proportionate foundation for managing firm failures.

The changes include raising the indicative thresholds for the minimum requirement for own funds and eligible liabilities (MREL) from £15-25 billion in total assets to £25-£40 billion. This will provide greater clarity and flexibility on whether a firm will need a transfer or bail-in strategy, with the former no longer needing to hold MREL above minimum capital requirements.

The thresholds will be updated every three years, starting in 2028, to reflect changes in nominal economic growth. HM Treasury has confirmed that it considers the Bank’s revised MREL policy ensures that requirements on growing firms are proportionate and support their growth, while managing financial stability risks.

The PRA’s consultation also includes a proposal to increase the Resolution Assessment Threshold for reporting and disclosures to £100 billion of retail deposits, up from £50 billion. This would ensure only the largest and most complex firms would need to report and disclose their preparations for resolution.

Dave Ramsden, Deputy Governor for Markets and Banking at the Bank of England, said:

“We have considered and reflected industry feedback in today’s announcements. These changes are designed to foster growth and competition, recognising that smaller firms present lower risks to financial stability, whilst also maintaining size-appropriate resolvability capabilities.

“This will ensure a proportionate UK resolution regime that is fit for purpose and ready to be used if required to resolve firms in a way that protects depositors and public funds.”

Background

The PRA intends to publish a Discussion Paper on Internal Ratings Based Models in mid-summer 2025.
The PRA has today published a Consultation Paper on adjustments to the Fundamental Review of the Trading Book element of Basel 3.1, which closes on 5 September.
Under the assumption that Basel 3.1 and the Strong and Simple capital regime are going to be implemented on the same date, the Interim Capital Regime (ICR) would no longer be required. The ICR was intended to provide Strong and Simple firms with the option to remain subject to current capital requirements, instead of implementing the Basel 3.1 standards, until the implementation date of the Strong and Simple capital regime.
The Bank has today released several publications related to MREL and the Resolution Assessment threshold. They consist of:
In addition to the above, HM Treasury intends to make several statutory instruments related to resolution, which have been considered when finalising MREL policy.
These publications should be read in conjunction with the Bank’s explanation of how the Bank maintains a fit for purpose resolution regime, which summarises how the resolution framework applies proportionately to firms to reflect their size, complexity, and potential level of risk to public funds if they fail.
MREL is a requirement for firms to maintain a minimum level of equity and eligible debt so they can be ‘bailed in’ or otherwise support a resolution should a firm fail. This reduces the likelihood that governments use public funds to rescue failing firms and in effect ‘bail out’ their creditors, as was the case during the global financial crisis.
The revised MREL policy sets out the responses to the consultation paper originally published on 15 October 2024: Amendments to the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL) | Bank of England.
The Resolvability Assessment Framework (RAF) is the Bank’s approach to assessing whether firms operating in the UK with bail-in or transfer as their preferred resolution strategy are prepared for resolution. The overarching aim of the RAF is to increase assurance that firms are, and can demonstrate that they are, resolvable, and to identify potential impediments to resolvability.
The consultation paper proposing to amend the Resolution Assessment reporting and disclosures threshold is the second update aimed at ensuring the RAF continues to apply to the largest and most complex firms, following PS1/25 on amendments to reporting and disclosure dates which changed the frequency of major UK firm RAF assessments.