On 5 May 2021, the PRA published a speech by Sam Woods (Deputy Governor for Prudential Regulation and CEO PRA) at the Building Societies Annual Conference entitled Mutual interests.

Mr Woods starts by explaining that following the implementation of the bulk of the 2008 post-crisis regulatory reforms the UK banking system was much better prepared to deal with the fallout from the COVID-19 pandemic. Mr Woods then explains the PRA’s proposals for a new ‘strong and simple’ regime for small building societies. He then covers the link between two ongoing reviews that are relevant for large building societies.  The first is the review of the leverage ratio. The second is the review of the minimum requirement for own funds and eligible liabilities (MREL). He ends by talking about mortgage risk weights, something that affects all building societies.

In relation to mortgage risk weights Mr Woods makes the following points:

• In September 2020 the PRA proposed two possible expectations on the level of modelled residential mortgage risk-weights: (i) a risk weight of at least 7% for individual mortgages; and (ii) an exposure-weighted average of at least 10% for the whole portfolio.
• The PRA has received the responses to its proposals and is assessing them.
• Four points stand out so far. First, there is a strong prudential case for some minimum expectations on model risk-weights. Second, in addition to the prudential benefits, such floors should, in Mr Wood’s view, benefit competition between larger firms on modelled and smaller firms on non-modelled approaches. Third, it is not yet clear whether both floors are needed, or what exactly the right calibration is, as it is not the intention of the policy to significantly increase capital across all mortgage providers. Fourth, the current economic and operational environment is somewhat unusual, the PRA will consider whether this has any implications for the implementation timelines of any final policy.