On July 12, 2018, the U.K. Prudential Regulation Authority published a statement on Systemic Risk Buffers and Pillar 2A in stress test hurdle rates. The Bank of England announced in its March 2018 Key Elements of the 2018 Stress Test that it would be making four changes to the way hurdle rates are calculated. Hurdle rates are the level that a firm's capital ratio falls to during a stress scenario relative to the level of capital a firm is expected to maintain during the scenario. The PRA's statement provides details on two of the ways in which hurdle rates will change: (i) hurdle rates will incorporate buffers to capture domestic systemic importance, in addition to global systemic importance; and (ii) the calculation of minimum capital requirements (incorporated in the hurdle rates) will more accurately reflect how they would evolve in a real stress scenario.
The PRA has not commented on when further details of the other changes to hurdle rates will be published. The BoE expects to publish the results of the stress test in Q4 2018.
The statement is available at: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/systemic-risk-buffers-and-pillar-2a-in-stress-test-hurdle-rates.pdf.
Details of the Key Elements of the 2018 stress test are available at: https://finreg.shearman.com/bank-of-england-publishes-details-of-its-2018-str.
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