The Bank’s response to the Commission’s call for evidence is http://www.bankofengland.co.uk/financialstability/Documents/regframework/detailed available at answers010216.pdf  12  The 8.5% minimum is composed of 6% common international standard agreed under Basel III plus the 2.5% pillar 2a requirement that reflects shortcomings in risk measures. See footnote 3. 13  We plan only for only the systemic part of the banking system to have a 5% buffer. In line with Basel standards, smaller banks will be subject to a buffer only half the size. That reflects the difference in economic costs between a big – systemic – bank coming close to or actually failing and a small bank doing so. 14  This will take effect by supplementing baseline capital requirements with the countercyclical capital buffer rate on UK exposures. 6  BIS central bankers’ speeches  We’ll be looking for the evidence that borrowers might have overstretched; that asset prices could be vulnerable to reversal; and that economic imbalances exist that could correct. Assessing risks isn’t the same as “calling the cycle”. We shouldn’t be asking whether a downturn or a bad event is destined to happen. We are not looking for irrefutable proof. Capital buffers should be based on whether the evidence says there is a threat that could materialise in future, not whether it is going to.
(c) From 2014 , the chart shows common equity Tier 1 capital ratios as reported by banks. Table 1 Average Tier 1 capital requirements across UK systemic banks Tier 1 Capital Requirements  %RWA  % Total Assets (leverage)  Minimum requirements (no less than 75% CET1)  8.5%  3%  Pillar 1  6%  Pillar 2a (reflecting shortcomings in risk measures)  2.5%  Baseline capital buffers (CET1)  10  5%  Capital conservation buffer  2.5%  Additional buffers for systemic importance  2.5%  0.75%  Total Tier 1 baseline requirements  13.5%  3.75%  + UK countercyclical buffer rate at standard risk level  1%  0.35%  BIS central bankers’ speeches  References Baker, M and Wurgler, J (2013), ‘Do strict capital requirements raise the cost of capital? Bank regulation and the low risk anomaly’, National Bureau of Economic Research Working Paper No. 19018, May. Bank of England (2015), ‘Supplement to the December 2015 Financial Stability Report: The framework of capital requirements for UK banks’, available at http://www.bankofengland.co.uk/publications/Documents/fsr/2015/fsrsupp.pdf Bank of England (2015), ‘Stress testing the UK banking system: 2015 results’ available at http://www.bankofengland.co.uk/publications/Documents/speeches/2016/ speech883.pdf. Bank of England Prudential Regulation Authority and Financial Conduct Authority, ‘The Failure of HBoS plc’ http://www.bankofengland.co.uk/pra/Documents/ publications/reports/hbos.pdf. Bank of England (2016), ‘Bank of England response to the European Commission Call for Evidence on the EU Regulatory Framework for Financial Services’, available at http://www.bankofengland.co.uk/financialstability/Documents/regframework/detail edanswers010216.pdf.