On 23 May 2022, the Financial Policy Committee (FPC) updated the document covering its framework for the systemic risk buffer. The update has been made to reflect the changes made by the FPC to the Other Systemically Important Institutions (O-SII) buffer framework as part of its 2021 review. The changes that have been made are set out in Box 1A on pages 6 to 8.
In response to the 2021 review, the FPC amended its framework as follows:
- Changed the metric used to determine O-SII buffer rates from total assets to the UK leverage exposure measure. The FPC has changed the metric used to determine O-SII buffer rates from total assets to the UK leverage exposure measure. O-SII buffer rates should be determined based on firms’ average of quarter-end leverage exposure measure. The use of an average of firms’ quarter-end leverage exposure measure will not take effect until after the PRA’s December 2023 review of O-SII buffer rates. Thus the December 2023 review will be based on end-2022 leverage exposure measure.
- The FPC has adjusted the thresholds used to determine the O-Sll buffer alongside the change in metric, in order to prevent an overall tightening or loosening of the framework relative to its pre-COVID level. The FPC has calibrated this adjustment based on financial results from 2019, before the large expansion in central bank reserves during the pandemic. As at December 2019, the UK leverage exposure measure for banks attracting an O-SII buffer was on average c.£15 billion lower than those banks’ total assets. The FPC has therefore reduced the previous O-SII buffer thresholds by a constant £15 billion.