UK PRA statement on enhancing the usability and releasability of capital buffers

The UK Prudential Regulation Authority (PRA) has published a statement clarifying that it may release other systemically important institution (O‑SII) buffers during periods of systemic stress. Consistent with the Bank of England's Financial Policy Committee's vision to modernise the bank capital framework, and as a near-step in support of that vision, the PRA intends to do so by exercising its existing powers to vary O‑SII buffer rates. This includes reducing them to zero under the Capital Buffers and Macro-prudential Measures Regulations 2025 while engaging with the FPC. The PRA explains that releasing O‑SII buffers would lower the capital threshold at which automatic distribution restrictions apply in stress, which in its view will support banks' ability to absorb losses rather than taking defensive actions such as reducing lending.

The PRA states that, following any release of the O-SII buffer, it would provide an indicative period during which no increase in O‑SII buffer rates would be expected, and that any subsequent rebuild would be phased over a period consistent with banks' ability to restore capital while continuing to lend to creditworthy UK households and businesses.

The PRA intends to consult later this year on proposed changes to its statement of policy on the approach to implementation of the O-SII buffer and related aspects of its approach to varying O-SII buffer rates in the event of systemic stress. This will include further guidance on rebuild expectations. The PRA will also consider whether greater clarity on the use of the PRA buffer outside periods of systemic stress, together with further engagement with investors and rating agencies, could improve the usability and understanding of regulatory capital buffers.

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