Sam Woods has written to Mel Stride answering the Treasury Committee’s follow up questions about the Strong and Simple framework. The letter explains that PRA received 19 responses to its consultation and says:
- in response to the criticism that firms couldn’t tell whether the thresholds for a “simpler-firm” were appropriate because the PRA’s strategy was so unclear, the response is that PRA does envisage a graduated framework, but that it thought it sensible to start from the bottom layer of firms – and its CP5/22 is intended to provide clarity about these bottom layer firms. Once the definition is settled, PRA will consult on mainly non-capital aspects of the regime. Later, PRA will look at larger but still non-systemic, domestic firms;
- in response to criticism that the proposed £15bn balance sheet cap should at least be in line with the MREL cap, PRA is closely considering this, but notes that the higher the threshold, the more likely it is that the degree of simplification may have to be reduced;
- in response to the criticism that cliff-edges are being created by setting upper limit thresholds, PRA says it is aware of needing to consider how firms will transition between sets of rules – PRA is very aware of cliff edges but says it cannot develop a simpler regime without setting some new thresholds; and
- in response to the criticism that some overseas borrowers may be “debanked” or excluded from the possibility of loans because of the proposed requirement for 85% of obligors to be based in the UK, the PRA says it is carefully considering this, and the effects of potential departures from Basel standards.