The Bank announced last year it will also make an adjustment to its approach to setting Pillar 2A add-ons to banks’ capital requirements in order to ensure the regulatory framework is proportionate to all lenders, thereby supporting effective competition, whilst not compromising on safety and soundness. 25  The adjustment allows supervisors to reduce Pillar 2A add-ons for banks which use the Standardised Approach for credit risk to reflect how risk weights under this approach tend to be higher than the risk weights determined using internal models at other banks for some types of assets. This is particularly the case for UK mortgages (Chart 7). Another part of the regulatory framework to which we have made adjustments is the Senior Managers and Certification Regime. We recognised following the implementation of the regime in 2016 that not all individuals that should be were in scope of the regime. In particular, the regime did not include a specific senior management function or responsibility related to areas such as operational continuity and operational resilience, including resilience to cyber risk. This omission was inconsistent with the Bank’s growing emphasis on these areas, as highlighted earlier. In response a new function – the Chief Operations function – has been added to the regime to ensure there is clear and appropriate accountability for operational continuity and resilience. 26  Identifying dynamic adjustments  We are doing two things to enable us to identify aspects of regulation that might need adjustment.
The peer group includes Barclays, Cooperative Banking Group, HSBC, Lloyds Banking Group, Nationwide, RBS and Santander UK. (d) From 2018, Basel III Tier 1 capital ratios reflect IFRS 9 transitional arrangements as agreed in European law. (e) Series begins at end-2007. Chart 2: UK banks’ holdings of liquid assets Liquidity Buffer  (a)(b)(c)(d)(e)  LCR HQLA  £ 800 750 700 650 600 550 500 450 400 350 300  2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: PRA regulatory returns (a) UK liquidity consolidation groups for major 7 UK banks. (b) DLG consolidation is applied to Barclays, HSBC, Lloyds, RBS and Santander UK, whilst solo UK entities are shown for Nationwide and Standard Chartered. (c) Liquidity buffer refers to the liquidity held under the ILG regime, which is reported weekly until at least July 2019. (d) LCR HQLA refers to high quality liquid assets under the EU Delegated Act (reported monthly since October 2015). (e) Definition of liquid assets is broader under the LCR. 17  All speeches are available online at www.bankofengland.co.uk/speeches  17  Chart 3: Modelling errors in market risk (10 years of data)  (a)(b)(c)  Variance Squared bias MSPE  4.50E-05 4.00E-05 3.50E-05 3.00E-05 2.50E-05 2.00E-05 1.50E-05 1.00E-05 5.00E-06 0.00E+00 1  2  3  4  5  Past days modelled Source: Hinterschweiger, Neumann, and Saporta (2018), ‘Risk sensitivity and risk shifting in banking regulation’, Bank of England Financial Stability Paper No.44 (a) True model is number 3.