Regulation of the Mortgage Market Must Consider Shadow Banks Stanford Institute for Economic Policy

Regulation of the Mortgage Market Must Consider Shadow Banks

When thinking about mortgages, traditional banks and savings agencies often come to mind. A single bank clerk is regarded as a mortgage lender, and people form a mortgage in the same place as having a current deposit or a normal deposit account. However, this view does not reflect the essence of the US mortgage market. The mortgage loan in the country has been very subdivided, and the proportion of traditional banks is getting smaller. For decades, banks have competed with independent mortgage companies that have no deposits and do not usually have actual stores.

To understand the roles of traditional banks and shadows banks, Greg Buccks of Chicago University, Gregor Matovos at the University of Texas, Tomash Piscorsky of Colombia University, and I have a subprime loan crisis and housing cramp. He conducted a wide range of surveys on the Mortgage Market from 2007 to 2016, which is the recession, the recovery of the housing market, and the lon g-term economic expansion period (Buchak et al. 2018A). Analyzing mortgage application data and various other datasets, he recorded important Shadow Bank in the past 10 years. During this time, its existence was not uniform. Shadow Bank had a major presence in the market before the crash 10 years ago, but later retreated as the bankruptcy increased. Surprisingly, since 2009, Shadow Bank has recovered market share and is now a majority of new mortgages (see Figure 1).

In Buchak et al., (2018B), the structure of the mortgage market, especially the rise of shadow banks, is a major factor that determines the possibility and price of mortgages, the safety and soundness of the bank system. I have revealed. For this reason, public policies that regulate the US mortgage market and encourage housing will be flawed unless these no n-banking market status considering this substantial market status. When thinking about mortgages, what often comes to mind is traditional banks and savings agencies. A single bank clerk is regarded as a mortgage lender, and people form a mortgage in the same place as having a current deposit or a normal deposit account. However, this view does not reflect the essence of the US mortgage market. The mortgage loan in the country has been very subdivided, and the proportion of traditional banks is getting smaller. For decades, banks have competed with independent mortgage companies that have no deposits and do not usually have actual stores.

The U.S. Mortgage Market

In Buchak et al., (2018B), the structure of the mortgage market, especially the rise of shadow banks, is a major factor that determines the possibility and price of mortgages, the safety and soundness of the bank system. I have revealed. For this reason, public policies that regulate the US mortgage market and encourage housing will be flawed unless these no n-banking market status considering this substantial market status. When thinking about mortgages, traditional banks and savings agencies often come to mind. A single bank clerk is regarded as a mortgage lender, and people form a mortgage in the same place as having a current deposit or a normal deposit account. However, this view does not reflect the essence of the US mortgage market. The mortgage loan in the country is very subdivided, and the proportion of traditional banks is getting smaller. For decades, banks have competed with independent mortgage companies that have no deposits and do not usually have actual stores.

Traditional Banks and Shadow Banks

US mortgages are the world's largest consumer finance markets. Currently, more than 50 million mortgages remain, and the total debt is about $ 10 trillion. The structure of this market is unique, reflecting the special role of federal governments to spread mortgages. The Federal Congress has established Fanny Mei and Freddy Mac to make mortgages more widely used. Fanny Mei and Freddie Mac are a private governmen t-supported company (GSE) who buy mortgages from lender, package them as mortgage securities (MBS), sell them to investors, and fall into debt defaults. Payment is guaranteed.

By distributing loans to investors, GSE has significantly expanded the mortgage market, increases the possibility of mortgage loan receivables, and reduces prices. This market structure is one of the main reasons for the high US housing acquisition rate. However, GSE only purchases loans up to the limit depending on the times and regions. Currently, the limit is called Conforming Loan and is $ 453, 100 in most detached houses in the United States. More mortgages are called jumbo loans and are not subject to GSE. Prior to the financial crisis, these loans could be sold to individual investors, including investment banks such as Lehman Brothers. However, since the financial crisis, the market for selling these loans has disappeared. Instead, jumbo mortgages are usually owned by financial institutions on a balance sheet. US mortgages are the world's largest consumer finance markets. Currently, more than 50 million mortgages remain, and the total debt is about $ 10 trillion. The structure of this market is unique, reflecting the special role of federal governments to spread mortgages. The Federal Congress has established Fanny Mei and Freddy Mac to make mortgages more widely used. Fanny Mei and Freddie Mac are a private governmen t-supported company (GSE) who buy mortgages from lender, package them as mortgage securities (MBS), sell them to investors, and fall into debt defaults. Payment is guaranteed.

By distributing loans to investors, GSE has significantly expanded the mortgage market, increases the possibility of mortgage loan receivables, and reduces prices. This market structure is one of the main reasons for the high US housing acquisition rate. However, GSE only purchases loans up to the limit depending on the times and regions. Currently, the limit is called Conforming Loan and is $ 453, 100 in most detached houses in the United States. More mortgages are called jumbo loans and are not subject to GSE. Prior to the financial crisis, these loans could be sold to individual investors, including investment banks such as Lehman Brothers. However, since the financial crisis, the market for selling these loans has disappeared. Instead, jumbo mortgages are usually owned by financial institutions on a balance sheet. US mortgages are the world's largest consumer finance markets. Currently, more than 50 million mortgages remain, and the total debt is about $ 10 trillion. The structure of this market is unique, reflecting the special role of federal governments to spread mortgages. The Federal Congress has established Fanny Mei and Freddy Mac to make mortgages more widely used. Fanny Mei and Freddie Mac are a private governmen t-supported company (GSE) who buy mortgages from lender, package them as mortgage securities (MBS), sell them to investors, and fall into debt defaults. Payment is guaranteed.

This structure is key to understanding the respective positions of traditional and shadow banks in the mortgage market. Traditional banks take deposits and use those funds to make loans, including mortgages. At the same time, they are heavily regulated and have strict requirements to hold capital on the loans they carry on their balance sheets. In the mortgage market, they have the option of selling mortgages to the GSEs and collecting origination fees and sometimes mortgage servicing fees. Or they hold mortgages on their balance sheets, collecting interest and principal until the loans are paid off, but taking on the risk that the borrower will default. The more capitalized they are, the more capable they are of holding mortgages. In contrast, shadow banks do not take deposits and are less regulated. Shadow banks generally do not have the balance sheet capacity to maintain the mortgages they originate. Shadow banks' business model is "originate-distribute," originating mortgages and selling them to the GSEs.[1]

The difference in structure between traditional and shadow banks leads to two types of segmentation in the mortgage market. First, traditional banks are at a competitive disadvantage in the conforming loan market because they face tougher capital requirements and a heavier regulatory burden. In Buchak et al. (2018a), we show that shadow banks increased their share of conforming loan originations from about 25% to almost 60% between 2008 and 2017, when bank capital requirements were tightened (see Figure 1). Shadow banks are largely shut out of the jumbo mortgage market, so their growing share is mainly limited to the GSE-sponsored conforming market, where traditional banks dominate.

Second, we find that balance sheet capacity to hold mortgages is an important factor explaining market segmentation across banks. Well-capitalized banks are more likely to hold mortgages on their balance sheets. Less-capitalized banks are more likely to behave like shadow banks and sell the mortgages they originate. Thus, the market share of well-capitalized banks jumps by 10% at the conforming loan limit.

Policy Initiatives

In summary, shadow banks are advantageous in the conference modorge market because of their loose regulations. Traditional banks are advantageous in jumbo markets (markets that are difficult to sell loans) because they have the capacity of deposits and have a mortgage loan in the balance sheet. Banks with capital power will maintain a mortgage, and banks without capital are likely to sell mortgages in the distribution market like a shadow bank.

Do not deposit

Can be owned by mortgages or sold to GSE
Sale to GSE is required
Competitive advantage in the jumbo market

Changes to Bank Capital Requirements

Competitive advantage in the confoming market

Such subdivided market structures have raised important policy issues on mortgage prices, usable possibilities, and the stability of the banking system. First, there is a distribution effect. Policy to increase the possibility of jumbo loan tends to benefit hig h-income and tend to increase inequal levels. Meanwhile, the policy of increasing the supply of confering loans will make more wealthy borrower and inequality. Second, it is a systemic risk issue. Increasing the supply of jumbo mortgages means increasing the amount of mortgage loans held in bank balance sheets, raising the level of credit risk in bank systems. However, shifting mortgage supply to the conference market provides further credit risk to GSE. In 2008, Fanny Mei and Freddie Mac were found to have fallen over their debt, and were under conservation management in the form of the federal government undertaking their debt. Therefore, if the supply of confering loans increases, the risk of the US Treasury, which is eventually taxpayers, may increase.

For the interaction between the shadow bank and the traditional bank, and the subdivision of the market, the US mortgage market economic models need to consider this link. The model built in Buchak et al. (2018b) examines how various policy initiatives affect the amount of mortgages, price setting, profit distribution of borrowing, and credit risks in bank systems. Can do. We considered three policy means:

Monetary Policy

Changes in capital regulations imposed on traditional banks

Changes to Conforming Loan Limits

Monetary initiative to purchase mortgage securities, known as quantitative easing conducted by the Federal Reserve (Fed) after the financial crisis

Change of conference loan limit

Conclusion

Rules of regulated capital, which are levied on banks, rose from 4 % in 2010 to 6 % in 2015. We verified the effects of regulations at five levels between 3 % and 12 %. Our model has shifted that banks will shift from balance sheets to their original toe distribution as their capital regulations are gradually raised. Since the sale of a mortgage is only possible on the confoming loan, this change shifts from jumbo to the conference market, reducing the share of mortgages held in bank balance sheets.

References

It should be noted that strengthening capital regulations reduces the traditional bank comparative advantage of shadow banks, and overestimates the overall decrease in mortgage loans, taking into account the bank's behavior alone. As a result, rental activities will move from traditional banks to shadow banks. If the capital regulation is 9 %, jumbo interest rates will increase 9 points, jumbo lending will decrease by 40 %, banks of banks will decrease by 71 %, and hig h-income earners are hitting. It will be done. As the shadow bank becomes more dominant, by strengthening the capital regulations, the risk of mortgage loans will move from bank balance sheet to GSE and indirectly move to the US Treasury.

Reducing capital regulations will only have a small impact on the amount of jumbo lending and interest rates. However, the loan held in bank balance sheets can increase significantly, increasing the risk of traditional bank sector.

The Federal Reserve Board (FRB), which buys mortgage securities under the quantitative easing program, tends to push down the loan mortgage interest rates sold to GSE and significantly increase confronging lending. 。 For example, if the MBS interest rate is reduced by 0. 25 % by quantitative easing, the conference loan interest rate will be reduced by almost the same. This will affect both traditional banks and shadow banks. However, GSE does not buy jumbo loans, so the market interest rate is not affected. Focusing only on banks that handle a lot of jumbo loans, the true impact of this policy will be modest. The net effect is that the new conference loan has increased $ 165 billion, and the composition of the jumbo loan is almost unchanged. Lo w-income earners will feel the biggest impact because confoming loans are easier to use and interest rates are reduced. With the increase in conference loans, credit risk shifts to GSE.

CP23/23 – Identification and management of step-in risk, shadow banking entities and groups of connected clients

Prior to 2008, GSE's confronbing loan was a singl e-family house, with a maximum of $ 417, 000, and was restricted in hig h-cost areas. To revitalize the housing market after the financial crisis, the limit was raised to $ 729, 750. Currently, the limit on the conference loan is from $ 453, 100 to $ 679, 650.

We have examined the range of $ 417, 000 in the whole country to completely eliminating the upper limit. Surprisingly, raising the limit will move loan execution from the jumbo market to the confoming market, reducing interest rates in both markets. The jumbo market will continue to survive by other rules, such as restrictions on loans to property prices. The main beneficiaries of the rising of the conference loan are hig h-income earners, and they will be able to borrow in the conference market, or to gain profits by lowering interest rates in the jumbo market. Banks with capital will continue to maintain a significant proportion of conference loans on a balance sheet, so the impact of raising the limit will affect the stability of the bank. GSE's sponsoring market changes have a significant impact on shadow banks, so focusing only on banks that handle jumbo loans will underestimate the true impact of this policy.

Shadow Bank is now a large and important part of the mortgage market. The financing and business are very different from traditional banks. Complete analysis of the mortgage market needs to consider how policy initiators, including traditional banks and shadow banks, and how policy initiatives have a relative position of the market. There is. In particular, policy measures can change the relative market share of traditional banks and shadow banks, which can affect the amount, cost, and distribution of both GSE's confronting and jumbo loans. Roughly speaking, initiatives, which increase the market share of confominated loans and reduce costs, bring profits to lo w-income borrowers, and eventually shift their credit to GSE, and eventually the US Treasury. Focusing only on the bank department will increase the impact of such policies by expanding the shadow bank. Policy to support the jumbo market will benefit from hig h-income borrowers and pass risks to bank systems.

BUCHAK, G. MATVOS, T. Piskorski, and A. Seru. (3), 453-483.

Buchak, G., G. Matvos, T. Piskorski, and A. Seru. (2018b) The Limits of Shadow Banks (NBER Working Paper Series No. 25149) Cambridge, Mass.

[1] A simple way to see this is to compare the loans that traditional banks have sold to the GSEs with the shadow banks. Figure 2 shows that the shadow banks have sold virtually all of their loans to the GSEs, whereas traditional banks have only sold a portion of them.

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1. 1 This Consultation Paper (CP) sets out the PRA’s proposed rules requiring CRR entities that are not small domestic deposit taking institutions (SDDTs) and CRR consolidated entities that are not SDDT consolidated entities to regularly assess their step-in risk. Step-in risk is the risk that a bank provides financial support to an unconsolidated entity that is experiencing stress when there is no contractual obligation to provide such support or when it is excessive. The proposal requires banks to develop their own policies and procedures for step-in risk and to report their assessment to supervisors based on a proposed assessment template. The proposal builds on the work of the Basel Committee on Banking Supervision (BCBS) in developing guidelines on identifying and managing step-in risks.

1. 2 This CP is a PRA that shifts guidelines on the PRA rules and supervised statements (SS) to the PRA rules and supervised guidelines of the European Bank of Bank Supervision Organization (EBA) (EBA). It also suggests. The PRA has improved the policy that has been fragmented by this proposal, which is rationalized in relevant policy documents, for example, to a part of the definition of the abolished EU order. We believe that accessibility will be improved and clear.

1. 3 The proposal shown in this CP will change the PRA policy materials (partial and supervised statements of the PRA rules) as shown in the table below.

Policy materials

suggestion
Document about ste p-in risk 2023 (attached document 1)
The following new parts will be introduced in the PRA rules book by this system:
Ste p-in risk portion

The following part of the PRA rulebook is also revised by this system:

Collection of terms

group

Report pillar 2

Regulation report
Large amount Export (CRR) document 2023 (attached document 5)
This regulation is amended to the following parts of the PRA rules.

Supervisory statement (SS)

Background and overview of proposals

Step-in risk

This CP proposes a new SS about the following:

Ste p-in risk "(attached document 2)

Identity, monitoring, management of exposure to the shadow banking business body (attached document 6)
Identification of consolidated customer groups for the purpose of Oguchi Exposure "(Appendix 7)

Shadow banking

1. 4 Unless otherwise refused, when referring to the law derived from the EU or the EU, it refers to the version of the law that constitutes a part of the EU method held.

The financial crisis from 2007 to 2008 may have an incentive that banks provide support to connected no n-connected businesses beyond contract obligations and ownership of such entities. It indicated that there was. This was proved by a case where a bank provided credit support and liquidity support to such entities. This risk is emphasized in guidelines for identification and management of BCBS ste p-in risks.

1. 6 The purpose of PRA's proposal for ste p-in risk is to identify and manage this potential ste p-i n-relus and in some cases:

Based on the BCBS guidelines for ste p-in risk, we will introduce a new rule of PRA, which requires CRR companies and CRR consolidation to evaluate ste p-in risk. (PRA believes that it is disproportionate to assemble ste p-in risk to the SDDT and SDDT consolidated subjects, so we propose that it is not included in the scope of ste p-i n-risk regulations). This includes rules for demanding policies and procedures for implementing evaluations. The company reports to the PRA in parallel with the internal capital enhancement process (ICAAP) evaluation (ICAAP) evaluation based on the report template included in this consultation.
Based on the BCBS guidelines, the SS with a detailed description of the fact that PRA is expected to consider the potential ste p-i n-risk and determine the potential easing measures as needed, Introducing guidance for the company.

Groups of connected clients

The 1. 7 crisis also revealed the risks of the increase in interconnection between the Shadow Banking System and the regulated bank system. Footnotes [2] Contrary to the possibility of this term, Shadow Bank plays an important and valuable role in the economy, expands access to credit, fluidity of the market, maturity, and risk sharing. By promoting, traditional banking can be complemented. However, these financial activities are often carried out by untreated or under untrustworthy. Such ban k-like activities can affect the bank department at a high risk, which may affect the stability of the financial system.

1. 8 In order to minimize the risk of companies from exposure to shadow banking, EBA set an upper limit on the total exposure of individual exposure to Shadow Banking Entity and SBE in December 2015. The guidelines for calling for: The final rule states that companies can continue to apply the SBE definition. Since January 2022, companies are required to report to PRA a consolidated 10 major exposure to SBE, which operates banking. This allows PRA to obtain information about corporate exposure to SBE.

1. 9 PRA proposes the following:
The eba guidelines on the limit of exposure to shadow banking will be transferred to a new SS "identification, monitoring, and management of exposure to shadow banking businesses," which adds some corrections.

Correct the Oguchi Exposure (CRR) part of the PRA rules book to include the definition of "Shadow Banking Enterprise" and "excluded entity".

Scope and accountability framework

The 1. 10 Oguchi Exposure (LE) framework is designed to protect banks from traumatic loss due to sudden default defaults of large business partners and connected customer groups (GCC). The purpose of GCC's definition is to identify customers who are closely connected due to peculiar risk factors, and it is wise to treat them as a single risk. In 2017, the EBA announced guidelines for consolidated customers who specified the approach to the company when applying the requirements of grouping two or more customers to GCC.

1. 11 PRA proposes the following:

After partially revised the connected client EBA guidelines, transfer to new SS.

Implementation

Fixed the LE (CRR) part of the PRA rules book to make the British rulebook more consistent, and include the definition of "consolidated customer groups" and "control".

1. 12 In the LE (CRR) part of the PRA Rule Book, the suggestions of SBE, GCC, and other related terms, as well as the PRA proposal of clarifying the transfer and reporting of the EBA guidelines to SS, identify both SBE and GCC. In this regard, while now improving fragmentary policies, the purpose is to improve the accessibility and clarity of the association's policy.

Responses and next steps

1. 13 CPs are related to PR A-approved British banks, Building Society, PR A-designated British investment companies, PR A-approved holding companies, PR A-designated holding companies, and other CRR consolidated entities. Ste p-in risks are not related to SDDT, SDDT consolidated, or companies or businesses that expect to be SDDT or SDDT consolidated.

2: Step in risk

Background

1. 14 PRA has a legal obligation to discuss the introduction of a new rule (Article 138 of FSMA) or a new standard (FSMA Article 138 S). If the rules are not enacted, PRA has a public law obligation to discuss widely if it is fair.

1. 15 PRA is required to comply with several legal obligations in performing its policy planning function. The analysis of this CP describes how the proposal was considered, including the explanation of how to consider these matters affected the proposal. None of the legal committees have been consulted.
1. 16 PRA proposes that the date of changes arising from the proposal for ste p-in risk will be made to January 1, 2026 (Thursday).
In the meantime, 1. 17 companies are hoped to strive to comply with existing EBA guidelines and GCCS EBA guidelines on the exposure limit to SBES. PRA hopes that companies will continue to meet these expectations and requirements after these guidelines have been proposed to the proposed SS and PRA rules.
1. 18 Consultation will end on March 5, 2024 (Tuesday). PRA is looking for opinions on proposals described in this consultation. For your opinions and inquiries, please contact cp23_23@bankofengland. co. uk. If any of the proposal of this CP may affect those who share the characteristic protected under the 2010 equal law (Equality Act 2010), and the impact. If there is, specify in the answer to what groups can affect such a group.

2. 1 The BCBS guidelines related to ste p-i n-risk are formulated as a part of the G20 initiative, which is a “monitoring and regulation of a shadow banking system to reduce the risk caused by the interaction between a systemic risk, especially the interaction between a bank and a shadow banking company”. It was done. Footnote [6] BCBS guidelines are "more general lessons applied for risks related to connections between banks and no n-connected entities, and there is a ste p-in risk and predicted. Includes a framework that intends to identify the necessary situations. BCBS pointed out:

Various initiatives have reduced the possibility of ste p-in by companies, but in order to identify the status of ste p-i n-risk different from what they have seen in the past, they may step in. Approximately an approach with a view to the future of

Step-in risk assessment

The specific evaluation of a ste p-i n-risk company evaluated by the director's authorities will be an appropriate way to identify and manage ste p-in risk;

The evaluation of each company does not automatically impose the first pillar capital or fluid levy, by adding it to existing capital requirements and fluid requirements. Instead, we will provide companies and supervisors to identify ste p-i n-risk and various measures to reduce such risks.

The company is responsible for choosing the most appropriate countermeasures when the ste p-in risk is identified, is checked by the supervisory authorities and disagree.
According to the 2. 2 guidelines, ste p-i n-risk can cause reputable risks, and we believe that companies may have a negative effect on weakening and bankruptcy of companies. It is said that it is the best to conclude that ste p-in is the best to provide financial support.
2. 3 CP proposal is a ste p-in specified in the BCBS guideline by demanding a regular assessment to properly identify ste p-in risk and confirm that it is managed. It develops risk management of risk. It is also demanding that in certain cases, further measures are needed to reduce the ste p-in risk. Eventually, the proposed individual evaluation will be reviewed and evaluated by the PRA, as expected in Basel Guidelines.
2. 4 The company may have individual or various exposure to no n-consolidated businesses, such as when acting as a sponsor, investing in debt or shares, or when there is a contract or no n-contracted exposure. 。

2. 5 So PRA has introduced a new risk management rules that seeks to conduct evaluation (ste p-i n-risk evaluation) in the future to identify as a no n-consolidated entity that can cause ste p-i n-risk. I propose to do. The proposed rules are to oblige the following matters:

Scope and level of application

In the method described in the above 2. 4, we will identify the relationship with a specific no n-consolidated entrepreneur and introduce a policy and process to evaluate;

Consider whether there are significant ste p-in risk indicators for companies that have been evaluated as important;
When a serious ste p-in risk is identified, determine whether the easing measures are needed.
At the same time as ICAAP, report the evaluation of ste p-in risk to the PRA.

Identification and assessment of step-in entities

Formulation of policies and procedures

The 2. 6 ste p-i n-risk evaluation stage is as follows.

2. 7 PRA aimed to adopt a corresponding approach in formulating the proposal specified in this CP. Therefore, PRA proposes the following evaluation:
The SDDT and SDDT consolidated subjects are unlikely to be exposed to no n-consolidated entities that cause ste p-in risk, so they do not apply to SDDT and SDDT consolidated subjects;
Since PRA believes that it is a sufficient level to effectively capture ste p-in risk, as follows, most companies are consolidated (and if you need to meet the requirements at that level. Only su b-connecting levels) apply (companies that do not belong to the consolidated group will perform an individual basis). Therefore, the company in this chapter should be interpreted as referred to as the consolidated subject of CRR.
Submit to PRA at the same time as ICAAP so that the frequency of ste p-in risk evaluation is proportional to the risk profile of each company.

The 2. 8 PRA proposes a policy and procedure for ste p-in risk, when the company performs ste p-in risk evaluation. These documents include an approach to the identification and management of ste p-in risk. This includes the following:

Identification of entities to be evaluated

подроб уазан ы;

оан подхода фы кача ра ва в на »(Т. Е. Какорам, которые уазыват а);

Exclusion of immaterial entities

оан подхода фы ц ц цос «шагающ» пдп; и

Assessment of the remaining entities against indicators

оан поца, сологог дл полорац, еоходиой длоц ца »а ».

2. 9 Даные поцдуы расататататадоры вамах повалой цала «Хода» фы поди. г оода.

2. 10 PRA first identifies all associated no n-consolidated businesses involved in sponsors, debt investors, stock investors, and other contracts or outside contracts when conducting ste p-i n-risk evaluation. Is proposed. Footnote [8] The proposed rules are listed in a no n-c o-eder type of no n-consolidated entry that should be included in ste p-i n-risk evaluation. In other words, for example, a financial institution or an incidental service entity is included.
2. 11 On the other hand, the proposed rules are excluded from the potential ste p-in evaluation targets if companies that have already applied prudical regulations, such as banks and insurance companies, are related to the application of prudence. In addition, the BCBS guideline contains the concept of "collective rebuttal." This means that if domestic laws and regulations prohibit ste p-in on a specific entity, the entity should be excluded from ste p-i n-risk evaluation. The PRA does not consider this as the basis for excluding the company from the analysis. However, when considering that there are prohibited items that reduce ste p-i n-risk, it is in ste p-i n-risk evaluation when considering whether the ste p-i n-risk is important. You may want to include details. 2. 10 PRA first, when conducting ste p-i n-risk evaluation, first, sponsors, debt investors, stock investors, and other relevant no n-connected industries involved in contracts or outside contracts. We propose to identify. Footnote [8] The proposed rules are listed in a no n-c o-eder type of no n-consolidated entry that should be included in ste p-i n-risk evaluation. In other words, for example, a financial institution or an incidental service entity is included.
2. 11 On the other hand, the proposed rules are excluded from the potential ste p-in evaluation targets if companies that have already applied prudical regulations, such as banks and insurance companies, are related to the application of prudence. In addition, the BCBS guideline contains the concept of "collective rebuttal." This means that if domestic laws and regulations prohibit ste p-in on a specific entity, the entity should be excluded from ste p-i n-risk evaluation. The PRA does not consider this as the basis for excluding the company from the analysis. However, when considering that there are prohibited items that reduce ste p-i n-risk, it is in ste p-i n-risk evaluation when considering whether the ste p-i n-risk is important. You may want to include details. 2. 10 PRA first identifies all associated no n-consolidated businesses involved in sponsors, debt investors, stock investors, and other contracts or outside contracts when conducting ste p-i n-risk evaluation. Is proposed. Footnote [8] The proposed rules are listed in a no n-c o-eder type of no n-consolidated entry that should be included in ste p-i n-risk evaluation. In other words, for example, a financial institution or an incidental service entity is included.

2. 11 On the other hand, the proposed rules are excluded from the potential ste p-in evaluation targets if companies that have already applied prudical regulations, such as banks and insurance companies, are related to the application of prudence. In addition, the BCBS guideline contains the concept of "collective rebuttal." This means that if domestic laws and regulations prohibit ste p-in on a specific entity, the entity should be excluded from ste p-i n-risk evaluation. The PRA does not consider this as the basis for excluding the company from the analysis. However, when considering that there are prohibited items that reduce ste p-i n-risk, it is in ste p-i n-risk evaluation when considering whether the ste p-i n-risk is important. You may want to include details.

Determination of the estimation method and appropriate actions

The 2. 12 PRA proposes the relationship with the subject after the associated subject has been identified. The first step is to determine whether a company is important. The company's policy includes the threshold of importance. This threshold may be based on the proportion of the company's capital (for example, a common capital Tier1 (CET1) capital) and a total asset. Therefore, if the entity is sufficiently small (even if it is individually considered or associated with other similar entities), it can be excluded from the considerations of the ste p-in risk. However, the PRA suggests that such entities should be reported as excluded in the comprehensive ste p-i n-risk evaluation reported to the PRA. Furthermore, while ste p-i n-risk evaluations are generally performed on a consolidated basis, PRA is important for PRA licensed companies in the group, but important for the entire consolidated group. We hope to reflect the fact that there is no situation in the company's importance (in this case, the company will set a threshold related to each approved company as needed). Therefore, such an example should be considered further at this stage, rather than excluding it as "not important".

2. 13 PRA, in order to determine whether ste p-in risk is important after excluding an entity with poor importance, considers the entity specified in the rules (for example, the purpose and design of entity). He suggested that the remaining entities should be evaluated in light of ste p-in risk indicators. The index should be considered in combination in combination with other factors that companies consider to be relevant, as well as the purpose and design of the company. This should be useful for the company to consider the nature of the relationship with the ste p-in entity and whether the incentives that step in during stress (for potential rephrasing risks) work. 。

2. 14 In the SS draft of the attached document 2, the following items are defined:

Reporting to the PRA

Expectations on the study of the company regarding ste p-i n-risk indicators (eg, the nature and degree of sponsorship, and the degree of influence)

Step-in risk consolidation requirement

Further expectations of PRA regarding matters that the company should consider in connection with the indicator, including an exemplary case;

PRA objective analysis

2. 15 The PRA provides a non-exhaustive list of types of entities that firms should consider when assessing step-in risk.

2. 15 The PRA proposes that after the assessment, firms should document cases where step-in risk is minor (where there are no or relatively weak indicators of step-in risk) and significant (where there are strong indicators of potential step-in). These should be reported to the PRA using the template proposed in Appendix 3. The PRA also proposes that firms should outline in their policy their approach to assessing materiality.

2. 16 The step-in risk assessment is designed as a risk management tool for firms to identify and manage potential step-in risks. However, based on a firm's assessment, if a significant step-in risk exists (for example, if there are multiple indicators that indicate step-in risk or if a single indicator indicates step-in risk), the PRA also expects the firm to consider what actions it will take to mitigate that risk. Therefore, the PRA proposes to outline a non-exhaustive list of responses that firms should take if step-in risks are identified on a forward-looking basis. These range from setting or amending internal limits related to SBE exposures to liquidity and capital adjustments.

Cost benefit analysis (CBA)

2. 17 However, the PRA expects firms to make their own decisions about how to respond to step-in risks based on the circumstances of each case. This may include considering whether any mitigating measures are already in place if step-in risks are identified (whether required by PRA rules or not). There is no pre-defined assumption about how firms should respond to step-in risks in a particular case. The approach to be taken will be discussed between the firm and the PRA when reviewing the step-in risk assessment.

2. 18 PRA pays attention to the BCBS guidelines that include "punishment and preliminary capital" as a supervisor response when intervening to support a company. This guideline describes this response as a way to deter banks to support support. PRA does not propose to include this element in the proposed approach. However, if you decide to support companies that have not been identified in ste p-i n-risk evaluation, you may have failed in risk management. Therefore, in such a situation, PRA may temporarily consider whether the second pillar and governance scalar are appropriate until the weakness is improved.

Benefits

2. 19 PRA has proposed to introduce three new templates so that companies can effectively implement and report ste p-i n-risk evaluations (attached 3). The first (Si0) includes general information about the reporting company. The second template (SI1) shows all the first no n-connected entities that are first identified for ste p-i n-risk evaluation, (excluded as "poor importance", and ste p-i n-risk. Details of important entities with no indicators or weak indicators, and important indicators of ste p-i n-risk) are described. The third template (Si2) determines how important trading enters the main trading entity indicating a serious ste p-in risk or a minor ste p-in risk (each of the ste p-in risks related). Proposal to take any of the detailed discussions and analysis of the indicators, and other factors that the company thinks that it is related), and what kind of easing measures to take when the trading entity with a serious ste p-in risk is identified. Ask the company to describe the details. The PRA hopes that the content of these transactions and the easing measures will be reported individually in the second template. In addition, the report instructions show some types of businesses that the company should consider in consideration of ste p-in risks, and for details of the types of these entities, the appendix 2. It is described in the attached book 1 of the SS draft. 2. 18 PRA is noted that the BCBS guidelines contained "punishment and preliminary capital levy" as a response to supervision as a response to the company to support companies. I am. This guideline describes this proposal as a way to deter banks to support support. PRA does not propose to include this element in the proposed approach. However, if you decide to support companies that have not been identified in ste p-i n-risk evaluation, you may have failed in risk management. Therefore, in such a situation, PRA may temporarily consider whether the second pillar and governance scalar are appropriate until the weakness is improved.

2. 19 PRA has proposed to introduce three new templates so that companies can effectively implement and report ste p-i n-risk evaluations (attached 3). The first (Si0) includes general information about the reporting company. The second template (SI1) shows all the first no n-connected entities that are first identified for ste p-i n-risk evaluation, (excluded as "poor importance", and ste p-i n-risk. Details of important entities with no indicators or weak indicators, and important indicators of ste p-i n-risk) are described. The third template (Si2) determines how important trading enters the main trading entity indicating a serious ste p-in risk or a minor ste p-in risk (each of the ste p-in risks related). Proposal to take any of the detailed discussions and analysis of the indicators, and other factors that the company thinks that it is related), and what kind of easing measures to take when the trading entity with a serious ste p-in risk is identified. Ask the company to describe the details. The PRA hopes that the content of these transactions and the easing measures will be reported individually in the second template. In addition, the report instructions show some types of businesses that the company should consider in consideration of ste p-in risks, and for details of the types of these entities, the appendix 2. It is described in the attached book 1 of the SS draft. 2. 18 PRA pays attention to the BCBS guidelines that include "punishment and preliminary capital" as a supervisor response when intervening to support a company. This guideline describes this response as a way to deter banks to support support. PRA does not propose to include this element in the proposed approach. However, if you decide to support companies that have not been identified in ste p-i n-risk evaluation, you may have failed in risk management. Therefore, in such a situation, PRA may temporarily consider whether the second pillar and governance scalar are appropriate until the weakness is improved.

2. 20 The PRA also proposes to introduce rules in the group part of the PRA rulebook to clarify that the PRA may exercise its powers under Article 18(8) of the CRR to consolidate certain subsidiaries or interests under Section 55M of the Financial Services and Markets Act when a substantial step-in risk exists (this provision has already been mentioned in SS15/13 - Group). This complements the introduction of the step-in risk assessment, as such a situation may emerge if an entity performs a step-in risk assessment. However, as in the proposed SS, the PRA believes that the application of the consolidation requirement will be limited in practice.

Costs

2. 21 The proposals are intended to reduce the likelihood of step-in risks materializing and address the associated risks arising from undercapitalization and under-provision of liquidity through off-balance sheet vehicles. This will contribute to the PRA's objective of promoting the safety and soundness of entities.

2. 22 Potential undercapitalization and underprovision of liquidity through off-balance sheet vehicles provide banks with the ability to use complex financial engineering to improve their funding costs. Smaller banks do not typically have such capabilities. The assessment of step-in risk therefore achieves the PRA's secondary competition objective by reducing the funding cost advantage of larger banks that arise from using off-balance sheet vehicles in circumstances where additional financial resources are judged to be necessary to mitigate the identified step-in risk.

Table 1: Estimated costs of the step-in risk assessment

2. 23 The PRA also assessed whether the proposals in this CP achieve its secondary objective of promoting the international competitiveness and medium to long-term growth of the UK economy, subject to consistency with relevant international standards. The PRA considers that the changes proposed in this CP are unlikely to have a significant impact on the UK's growth or international competitiveness. However, the PRA believes that by carrying out a step-in risk assessment which implements internationally agreed guidelines in all material respects, businesses are likely to be more resilient in identifying, monitoring and managing risks that they might not have otherwise foreseen. This could have a positive effect in providing confidence to investors and businesses and ensuring that the UK remains competitive and attractive as a place to do business.

2. 24 PRA is the most consistent with the Basel Guidelines for the published ste p-i n-risk, which is most suitable for how to respond to ste p-in risks. We examined a proportional method so that companies can perform efficiently. PRA's application range guarantees that it is applied only to companies that are likely to have a ste p-in risk. The frequency of assessments further enhances the consistency between the director's director and the corporate risk profile. In addition, the template proposed by the PRA supports ste p-i n-risk reports and monitoring, reducing the burden on companies. The only important point is that it is only for important ste p-in companies to create palliative measures related to detailed evaluation.

The 2. 25 PRA has a quantitative estimate of the cost and benefits of ste p-in risk evaluation. These estimates should be treated as indicators because there is no data on sufficient data, especially the costs that are likely to be associated with ste p-in risk. These quotes are likely to be affected by the assumptions described below, so they are quite uncertain.

Footnotes

2. 26 The benefits of ste p-in risk evaluation are caused by reducing the probability of ste p-in risk in the future. At present, due to lack of ste p-i n-risk data, PRA, instead, a loss that may be covered by a no n-consolidated entrepreneur with an exposure (these losses are the business of the company. We estimated the benefits related to the decrease in the decrease in the decrease in the decrease in the decrease in the decrease in the decrease of the body to incorporate the body into the balance sheet. 2. 24 PRA is the most consistent with the basel guidelines for the PRA, which is the most consistent of PRA's first and secondary purpose of how to respond to ste p-in risks. We examined a proportional method so that companies can carry out efficiently. PRA's application range guarantees that it is applied only to companies that are likely to have a ste p-in risk. The frequency of assessments further enhances the consistency between the director's director and the corporate risk profile. In addition, the template proposed by the PRA supports ste p-i n-risk reports and monitoring, reducing the burden on companies. The only important point is that it is necessary to create a detailed mitigation measure related to detailed evaluation.

‘Have regards’ analysis

2. 26 The benefits of ste p-in risk evaluation are caused by reducing the probability of ste p-in risk in the future. At present, due to lack of ste p-i n-risk data, PRA, instead, a loss that may be covered by a no n-consolidated entrepreneur with an exposure (these losses are the business of the company. We estimated the benefits related to the decrease in the decrease in the decrease in the decrease in the decrease in the decrease in the decrease of the body to incorporate the body into the balance sheet. 2. 24 PRA is the most consistent with the Basel Guidelines for the published ste p-i n-risk, which is most suitable for how to respond to ste p-in risks. We examined a proportional method so that companies can perform efficiently. PRA's application range guarantees that it is applied only to companies that are likely to have a ste p-in risk. The frequency of assessments further enhances the consistency between the director's director and the corporate risk profile. In addition, the template proposed by the PRA supports ste p-i n-risk reports and monitoring, reducing the burden on companies. The only important point is that it is only for important ste p-in companies to create palliative measures related to detailed evaluation.

2. 27 The PRA considered the full potential losses on unconsolidated entities reported by companies in their annual accounts. The PRA assumed that companies’ potential losses would only be around 75% of these amounts (i. e. taking into account possible mitigation measures). The PRA also assumed that companies would only “step in” these amounts onto their balance sheets once every 33 years (i. e. in the event of a systemic banking crisis). The estimated benefits of carrying out a step-in risk assessment based on this methodology are around £224 million per company for small companies and around £484 million per company for large companies. Footnote [10] (These benefit estimates assume that step-in risks are fully mitigated. However, these benefits would be reduced if actual step-in losses occurred despite mitigation measures in place.) 2. 28 The benefit of a firm carrying out an assessment of its step-in risks is that external stakeholders may believe that the firm is more resilient as a result of understanding and managing its step-in risks, which may increase confidence in the firm and potentially the financial sector as a whole. Such confidence may also have a positive impact on broader economic output if the perception of the financial sector's resilience improves.

2. 29 Step-in risks are a risk that contributed to the scale of the financial crisis. However, the deterioration of economic conditions associated with the prevention of step-in risks is not taken into account in the quantitative estimates above due to methodological limitations. However, the PRA believes that the assessment of step-in risks can help to limit the negative knock-on effects of a step-in event.

By introducing 2. 30 ste p-in risk evaluation into business, companies have two types of costs: on e-out introduction cost and continuous cost. PRA estimated these costs using answers to reports and disclosure requirements. PRA compares the scope of these changes with the proposal of this CP, and based on the survey estimates, the cost of a on e-risk evaluation company is distinguished between small and mediu m-sized enterprises and large companies. did. Then, the costs per company were collected with the maternal group of companies that would be affected, and the total cost was estimated, and the current value was demanded using discounted coefficients. However, these estimates have a considerable uncertainty, reflecting the limited samples available by PRA.

2. 31 Table 2 is an estimate of the cost of a ste p-in risk assessment based on the above methodology. PRA calculated three estimated costs, high, medium, and low. Table 1 indicates the range of estimated costs, low and high, suggesting that the actual cost is likely to be between them. On average, a singl e-expiration cost is estimated to be about £ 0. 7 million, and the continuous cost is estimated to be about 2. 8 million pounds.

Impact on mutuals

Cost per company (thousand pounds)

Equality and diversity

Small business

3: Shadow banking entities

Large company

Source: PRA Note: The threshold for distinguishing a small company and a large company is £ 100 billion. The continuous cost is the current value of the future continuous cost, with a discount rate of 3. 5%(HM Treasury Green Book, 2022, Appendix A6). 2. 30 The introduction of ste p-in risk evaluations will result in two types of costs: on e-out introduction cost and continuous cost. PRA estimated these costs using answers to reports and disclosure requirements. PRA compares the scope of these changes with the proposal of this CP, and based on the survey estimates, the cost of a on e-risk evaluation company is distinguished between small and mediu m-sized enterprises and large companies. did. Then, the costs per company were collected with the maternal group of companies that would be affected, and the total cost was estimated, and the current value was demanded using discounted coefficients. However, these estimates have a considerable uncertainty, reflecting the limited samples available by PRA.

Cost per company (thousand pounds)

Small business

Large company

Source: PRA Note: The threshold for distinguishing a small company and a large company is £ 100 billion. The continuous cost is the current value of the future continuous cost, with a discount rate of 3. 5%(HM Treasury Green Book, 2022, Appendix A6). By introducing 2. 30 ste p-in risk evaluation into business, companies have two types of costs: on e-out introduction cost and continuous cost. PRA estimated these costs using answers to reports and disclosure requirements. PRA compares the scope of these changes with the proposal of this CP, and based on the survey estimates, the cost of a on e-risk evaluation company is distinguished between small and mediu m-sized enterprises and large companies. did. Then, the costs per company were collected with the maternal group of companies that would be affected, and the total cost was estimated, and the current value was demanded using discounted coefficients. However, these estimates have a considerable uncertainty, reflecting the limited samples available by PRA.
2. 31 Table 2 is an estimate of the cost of a ste p-in risk assessment based on the above methodology. PRA calculated three estimated costs, high, medium, and low. Table 1 indicates the range of estimated costs, low and high, suggesting that the actual cost is likely to be between them. On average, a singl e-expiration cost is estimated to be about £ 0. 7 million, and the continuous cost is estimated to be about 2. 8 million pounds.

Cost per company (thousand pounds)

Small business
Large company

2. 32 In summary, PRA believes that if only a small portion of the potential loss occurs once in 33 years, both large and small businesses will reach the benefit point in terms of cos t-profit. If the total cost of the total expenses in Table 1 above is used as a percentage of the total benefits, it is necessary for large companies to achieve only 0. 05 % of losses and 0. 007 % in small and mediu m-sized enterprises). Companies may be less than the point of the durns, to the extent that they can rely on further reduction measures for such risks (that is, when the benefits are lower than the estimate). Another possibility is that the regulatory reform implemented after the 2007-08 financial crisis has reduced the probability of a financial crisis than 3 %. However, even if the probability of a crisis occurs, as a company reported, a large benefit of existing no n-connected entry is large. This includes providing more fluid support, even if there is no contract obligation. Further examples are that they do not step into the support of no n-connected companies, resulting in additional costumes that may be borne by the company in the event of reputational damage that leads to pressure from the market. Can be considered. Finally, if there is no proposed risk evaluation framework, the company 2. 32 is summarized, and if there are only a few potential losses that occur once every 33 years, large companies are small and mediu m-sized companies. Companies also believe that they will reach a benefit point in terms of cos t-benefit (when used as a percentage of hig h-cost estimates in the total cost in Table 1 above, large companies are 0. 05 % of small and mediu m-sized businesses. Then, only 0. 007 % needs to be realized). Companies may be less than the point of the durns, to the extent that they can rely on further reduction measures for such risks (that is, when the benefits are lower than the estimate). Another possibility is that the regulatory reform implemented after the 2007-08 financial crisis has reduced the probability of a financial crisis than 3 %. However, even if the probability of a crisis occurs, as a company reported, a large benefit of existing no n-connected entry is large. This includes providing more fluid support, even if there is no contract obligation. Further examples are that they do not step into the support of no n-connected companies, resulting in additional costumes that may be borne by the company in the event of reputational damage that leads to pressure from the market. Can be considered. Finally, if there is no proposed risk assessment framework, the company 2. 32, if there is only a small part of the potential loss that occurs once in 33 years, both large companies and small and mediu m-sized enterprises are We believe that it will reach a benefit point in terms of cos t-benefit (when used as a percentage of the total cost of the total cost in Table 1 above, it is 0. 05 % for large companies and 0. 007 % for small and mediu m-sized enterprises. There is only need to be realized). Companies may be less than the point of the durns, to the extent that they can rely on further reduction measures for such risks (that is, when the benefits are lower than the estimate). Another possibility is that the regulatory reform implemented after the 2007-08 financial crisis has reduced the probability of a financial crisis than 3 %. However, even if the probability of a crisis occurs, as a company reported, a large benefit of existing no n-connected entry is large. This includes providing more fluid support, even if there is no contract obligation. As a further example, an additional cost of a company that may be borne by the company will increase in the case of reputational damage that will lead to pressure from the market because it is not stepped in to support no n-connected companies. Can be considered. Finally, if there is no framework for the proposed risk evaluation, the company
2. 33 In the formulation of these proposals, PRA took into account the FSMA's regulation principles of the government's economic policy in the HMT recommendation in December 2022. If the rules proposed in this CP are "CRR Rules" (defined in FSMA Article 144a) or the rules applied to the holding company (FSMA Article 192XA), the PRA is recent rules. We also considered the matters required to consider when enacting. Footnote [12] 2023 Financial Service Market Law includes measures to correct FSMA's regulatory principles. This has added a rule of regulation on the UK's Net Zero Emission Goals. PRA paid attention to this. The following factors that PRAs are required to consider were important in analysis of PRA proposal:
1. The principle that the burden and restrictions imposed on the person should be balanced to the expected benefits by imposing the burden (FSMA's regulation principle): The principle that burden and restrictions should be proportional to its benefits. In light of, PRA examined whether to set different levels and applicable range for ste p-in risk evaluation. However, PRA is the most proportional option of this CP because this proposal excludes SDDT from the requirements, and the requirements are not applied individually (except for companies that do not belong to a consolidated group). I think it is.

PRA objective analysis

2. Necessity to use PRA resources in the most efficient and economic way (FSMA regulatory principles): PRA has an aprocho to reduce the time and resources to spend on the ste p-i n-risk evaluation. I think it was applied. In particular, this proposal includes a standardized template that is effective effectively when the director's authorities review the ste p-in evaluation.

3. PR A-approved companies' hig h-level managers regarding the requirements imposed by PRA (FSMA's regulatory principles): In the design of the proposal, PRA emphasizes the need for senior managers in decisio n-making. I considered. According to the rules shown in the appendix 1, it is clear that the company's management approves ste p-i n-risk policies and procedures and ste p-i n-risk evaluation. 2. 33 In the formulation of these proposals, PRA took into account the FSMA regulatory principles, aspect of the government's economic policy in the HMT recommendation in December 2022. If the rules proposed in this CP are "CRR Rules" (defined in FSMA Article 144a) or the rules applied to the holding company (FSMA Article 192XA), the PRA is recent rules. We also considered the matters required to consider when enacting. Footnote [12] 2023 Financial Service Market Law includes measures to correct FSMA's regulatory principles. This has added a rule of regulation on the UK's Net Zero Emission Goals. PRA paid attention to this. The following factors that PRAs are required to consider were important in analysis of PRA proposal:

Cost benefit analysis

1. The principle that the burden and restrictions imposed on the person should be balanced to the expected benefits by imposing the burden (FSMA's regulation principle): The principle that burden and restrictions should be proportional to its benefits. In light of, PRA examined whether to set different levels and applicable range for ste p-in risk evaluation. However, PRA is the most proportional option of this CP because this proposal excludes SDDT from the requirements, and the requirements are not applied individually (except for companies that do not belong to a consolidated group). I think it is.

3. PR A-approved companies' hig h-level managers regarding the requirements imposed by PRA (FSMA's regulatory principles): In the design of the proposal, PRA emphasizes the need for senior managers in decisio n-making. I considered. According to the rules shown in the appendix 1, it is clear that the company's management approves ste p-i n-risk policies and procedures and ste p-i n-risk evaluation. 2. 33 In the formulation of these proposals, PRA took into account the FSMA's regulation principles of the government's economic policy in the HMT recommendation in December 2022. If the rules proposed in this CP are "CRR Rules" (defined in FSMA Article 144a) or the rules applied to the holding company (FSMA Article 192XA), the PRA is recent rules. We also considered the matters required to consider when enacting. Footnote [12] 2023 Financial Service Market Law includes measures to correct FSMA's regulatory principles. This has added a rule of regulation on the UK's Net Zero Emission Goals. PRA paid attention to this. The following factors that PRAs are required to consider were important in analysis of PRA proposal:

‘Have regards’ analysis

4. PRA is desirable to exercise its functions in a form that recognizes the differences in the nature of business that each person performs (FSMA's regulation principle): PRA is excluded from the requirements, and PRA is a ste p-i n-in. We believe that only companies that are most likely to be risked will carry out ste p-i n-risk evaluation.

5. Regulatory authorities should provide clear information, guidance, and advice to fulfill the responsibility of regulatory subjects, and ensure the transparency of the approach to regulatory activities (Legislative and Regular Reform Act 2006): The SS of the appendix 2 proposed by PRA provides detailed guidance on how to implement ste p-i n-risk evaluation.

2. 34 PRA also considers other factors as needed. This is because if the analysis is not performed in light of the elements that should be considered, the PRA determines that the "should be considered" element is not important for this proposal. Regarding the above proposals, the statutory committee did not consult.

The 2. 35 PRA believes that the impact on the proposed rules to mutual companies remains the same as the impact on other companies. This is because this proposal is equally applied to all target companies, including mutual companies, (companies that are not consolidated SDDT).

Impact on mutuals

2. 36 PRA believes that this proposal does not affect equality and diversity.

Equality and diversity

3. 1 Shadow Banking can complement traditional banking by expanding access to valuable credits that support economic activities, and supporting market fluidity, maturity conversion, and risk sharing. Footnote [13] However, SBE is not only uncertain and complexity that is often observed over multiple SBEs, but also management collapse and fluid problems, interconnection and spirits with SBE and regulatory banks. It is potentially vulnerable to excessive leverage and pr o-sectoricality. 4. PRA is desirable to exercise its functions in a form that recognizes the differences in business properties that each person performs (FSMA's regulation principle): PRA steps by excluding SDDT from the requirements. ・ We believe that only the company that is most likely to receive the impact of i n-risk will carry out ste p-i n-risk evaluation.

4: Groups of connected clients

2. 36 PRA believes that this proposal does not affect equality and diversity.

3. 1 Shadow Banking can complement traditional banking by expanding access to valuable credits that support economic activities, and supporting market fluidity, maturity conversion, and risk sharing. Footnote [13] However, SBE is not only uncertain and complexity that is often observed over multiple SBEs, but also management collapse and fluid problems, interconnection and spirits with SBE and regulatory banks. It is potentially vulnerable to excessive leverage and pr o-sectoricality. 4. PRA is desirable to exercise its functions in a form that recognizes the differences in the nature of business that each person performs (FSMA's regulation principle): PRA is excluded from the requirements, and PRA is a ste p-i n-in. We believe that only companies that are most likely to be risked will carry out ste p-i n-risk evaluation.

5. Regulatory authorities should provide clear information, guidance, and advice to fulfill the responsibility of regulatory subjects, and ensure the transparency of the approach to regulatory activities (Legislative and Regular Reform Act 2006): The SS of the appendix 2 proposed by PRA provides detailed guidance on how to implement ste p-i n-risk evaluation.
2. 34 PRA also considers other factors as needed. This is because if the analysis is not performed in light of the elements that should be considered, the PRA determines that the "should be considered" element is not important for this proposal. Regarding the above proposals, the statutory committee did not consult.

2. 36 PRA believes that this proposal does not affect equality and diversity.

3. 2 EBA has announced guidelines on the exposure limit to the SBE to reduce the risk of spillover between the shadow banking system and the Bank of the Regulatory Bank. According to this guideline, as part of the internal process, the company is required to set a limit on the total exposure to SBES and the total exposure to SBES. PRA approved companies are expected to make the most of the PRA EU guidelines and the interpretation of the recommendation of the recommendation, to make the most of their efforts to comply with these guidelines.

3. 3 From January 2022, Article 394 of the PRA rules book LE (CRR) part reports from CRR to report up to 10 exposure to SBES, which conducts banking operations outside the regulated framework, on a consolidated basis. The requirements are applied. This helps PRA to secure enough information to monitor the risk of exposure to SBE.

PRA objective analysis

3. 4 SBES is not defined in capital regulations (CRR) or PRA rulesbooks. Instead, the PRA is PS17/21, and companies can continue to use the SBE definitions prescribed in the EBA guidelines.

3. 5 The number of policy materials required to implement the policy correctly has created unnecessary complexity. This chapter shows PRA proposal to improve the accessibility and clarity of this policy.

Cost benefit analysis

3. 6 PRA proposes the following:

The PRA Rule Book of the PRA rule book is added, such as renewing the definition of the "Bank of Shadow" and the "excluded entity" stipulated in the EBA guidelines, such as updating the reference to the EU method scheduled to be abolished. Transfer to LE (CRR) part.

The current EBA guidelines for the exposure amount to SBES are transferred to the new SS with some corrections.

‘Have regards’ analysis

3. 7 PRA proposes to make the following minor changes to the definition:

Update earlier mentions on the EU and the EU method that is scheduled to be abolished.

The British government agencies and the equivalent thir d-country entrepreneurs are included in the definition of the "excluded entity". This is to clarify that these subjects are not included in the SBE definition.

3. 8 PRA proposes to transfer the following sections of the EBA guidelines to SS without making important changes:

Requirements on the limit of exposure to SBE;

Major approach to the limit setting of exposure to SBE, and

Fallback approach

Impact on mutuals

3. 9 These proposals intend to set the internal limit to the exposure to the SBE and reduce the risk of increasing the mutual relationship between banks and shadow banking. Furthermore, suggestions for the SBE definition in the PRA rules are intended to support companies correctly identification of SBE and secure the correct report to SBE. This promotes PRA's purpose to promote corporate safety and soundness.

Equality and diversity

3. 10 PRA also promotes effective competition and promotes the international competitiveness and growth in the medium to long term, assuming the consistency with the related international standards. He evaluated whether to achieve the secondary goal of the PRA. The PRA believes that the changes proposed in the CP will have a significant impact on British growth and international competitiveness. Rather, the PRA is enhanced by the introduction and implementation and implementation of a forced standard for the exposure of the SBES and the implementation and implementation of a forced standard for management, and the quality of the report is improved by improving the quality of the report. I expect it to be done. This eliminates the accurate surveillance of sector integrated risks, and eliminates the cost of the Le framework for small or small banks for small or small banks in large banks to SBES. Clearly applying is easier and contributes to fair competitive environments in the UK financial system.

3. 11 EBA guidelines have effectively supported the appropriate response to all companies, taking into account the exposure of exposure to the SBE, monitoring and managing in consideration of the possibility of increasing the risk of cockers by cockers.
3. 12 Under the proposal to revise the rules and introduce new SS, British companies can continue to benefit from initial guidelines. In addition, the implementation of this proposal improves accessibility to the PRA rules book, enables the company to monitor and manage exposers to SBES more appropriately, and improves the quality of LE reported data. These suggestions are the help of the company satisfies basic rules 3 (acting with a cautious attitude appropriate for safety and health) and basic rules 6 (responsibly and effectively organize and manage operations). I will.
3. 12 Under the proposal to revise the rules and introduce new SS, British companies can continue to benefit from initial guidelines. In addition, the implementation of this proposal improves accessibility to the PRA rules book, enables the company to monitor and manage exposers to SBES more appropriately, and improves the quality of LE reported data. These suggestions are the help of the company satisfies basic rules 3 (acting with a cautious attitude appropriate for safety and health) and basic rules 6 (responsibly and effectively organize and manage operations). I will.
3. 14 In the formulation of these proposals, PRA took into account the FSMA's regulatory principles, aspect of the government's economic policy shown in the HMT Recommendation Letter in December 2022. If the rules of this CP are "CRR Rules" (defined in FSMA Article 144a) or the rules applied to the holding company (FSMA's 192XA Article 192XA), PRA formulates the recent rules. We also considered matters required to consider when doing. This has added a rule of regulation on the UK's Net Zero Emission Goals. PRA paid attention to this. The following factors that PRAs are required to consider were important in analysis of PRA's proposal: 3. 13 Proposal measures were to supervise the company or review regulation returns. It does not require a significant new resource to do. This proposal aims to enable the company to identify the exposure to the SBE more appropriately, and as a result, the time and resources required to review LE regulation data are significantly reduced. Furthermore, since there is no substantial change, it is not necessary to introduce a new administrative procedure to the company through this measure, and there is no adverse effect on additional resources and the quality of capital. Furthermore, there is no expectation on the market due to the introduction of proposed measures.
3. 14 In the formulation of these proposals, PRA took into account the FSMA's regulatory principles, aspect of the government's economic policy shown in the HMT Recommendation Letter in December 2022. If the rules of this CP are "CRR Rules" (defined in FSMA Article 144a) or the rules applied to the holding company (FSMA's 192XA Article 192XA), PRA formulates the recent rules. We also considered matters required to consider when doing. This has added a rule of regulation on the UK's Net Zero Emission Goals. PRA paid attention to this. The following factors that PRAs are required to consider were important in the analysis of PRA's proposal: 3. 13 Proposal measures were to supervise the company or review regulation returns. It does not require a significant new resource. This proposal aims to enable the company to identify the exposure to the SBE more appropriately, and as a result, the time and resources required to review LE regulation data are significantly reduced. Furthermore, since there is no substantial change, it is not necessary to introduce a new administrative procedure to the company through this measure, and there is no adverse effect on additional resources and the quality of capital. Furthermore, there is no expectation on the market due to the introduction of proposed measures.
3. 14 In the formulation of these proposals, PRA took into account the FSMA's regulatory principles, aspect of the government's economic policy shown in the HMT Recommendation Letter in December 2022. If the rules of this CP are "CRR Rules" (defined in FSMA Article 144a) or the rules applied to the holding company (FSMA's 192XA Article 192XA), PRA formulates the recent rules. We also considered matters required to consider when doing. This has added a rule of regulation on the UK's Net Zero Emission Goals. PRA paid attention to this. The following factors that PRAs are required to consider were important in analysis of PRA proposal:
3. 14 In the formulation of these proposals, PRA took into account the FSMA's regulatory principles, aspect of the government's economic policy shown in the HMT Recommendation Letter in December 2022. If the rules of this CP are "CRR Rules" (defined in FSMA Article 144a) or the rules applied to the holding company (FSMA's 192XA Article 192XA), PRA formulates the recent rules. We also considered matters required to consider when doing. This has added a rule of regulation on the UK's Net Zero Emission Goals. PRA paid attention to this. The following factors that PRAs are required to consider were important in analysis of PRA proposal:
3. Responsibility of senior management of PRA-approved bodies for compliance with requirements imposed by the PRA (FSMA regulatory principle): In designing the proposal, the PRA considered how to emphasize the need for senior management responsibility in decision-making. The guidance provided in the proposed SS clarifies that the company's management is responsible for approving policies and procedures related to SBEs.
4. It is desirable that PRA is desirable to exercise its functions in a form that recognizes the differences in business properties performed by different people (FSMA's regulation principle): This proposal has identified and reports the 10 major exposure to SBES. In order to support the identification of SBES, it does not directly affect the nature of the business performed by different people. With the existing expectation that the company sets an original internal limit on the total exposure of each exposure and SBES for SBES, the company can consider the nature of the business performed by different people.
5. Regulatory authorities should provide clear information, guidance, and advice so that regulatory subjects can fulfill their responsibilities, and ensure the transparency of the approach to regulatory activities (Legislative and ReguLATORY REFORM ACT 2006 ): The SS of the attached document 6 proposed by PRA provides detailed guidance on the identification, monitoring, and management method of the SBES according to the degree of exposure that the company can use.
3. 15 PRA also took other factors as needed. This is because if the analysis of this proposal has not been analyzed for "to consider", PRA determines that "to consider" is not an important factor for this proposal.
3. 16 PRA believes that these policy proposals have the same impact on mutual companies. The EBA guidelines, which are the basis of this proposal, have already contributed to proportional properties, and these elements are maintained when the corresponding part of the guidelines is transferred to PRA rules and SS.
3. 12 Under the proposal to revise the rules and introduce new SS, British companies can continue to benefit from initial guidelines. In addition, the implementation of this proposal improves accessibility to the PRA rules book, enables the company to monitor and manage exposers to SBES more appropriately, and improves the quality of LE reported data. These suggestions are the help of the company satisfies basic rules 3 (acting with a cautious attitude appropriate for safety and health) and basic rules 6 (responsibly and effectively organize and manage operations). I will.
3. 16 PRA believes that these policy proposals have the same impact on mutual companies. The EBA guidelines, which are the basis of this proposal, have already contributed to proportional properties, and these elements are maintained when the corresponding part of the guidelines is transferred to PRA rules and SS.
4. 2 GCC in CRR, in a broad sense, one of them is directly or indirectly dominated by a single risk, or one of them causes financial problems. , Other subjects are defined as a subject that constitutes a single risk because the more likely it is to cause financial problems. Footnote [16].
4. 3 In November 2017, the EBA announced a guidelines for connected clients. This guideline stipulates the approach that the company should take when applying the requirements of grouping into a "connected customer group" in order for two or more customers to make a single risk. PRA approved companies are expected to make the most of the PR A-based approach to interpretation of EU guidelines and recommendations, to make the most of their efforts to comply with these guidelines.
The approach shown in the 4. 4 EBA guidelines is faithful to the approach specified based on Basel standards for LE measurement and management. Footnote [17] For this reason, the proposal of this chapter transfers the definition and standards to the PRA rules book, adds some corrections, and transferrates the remaining guidelines to a new SS to form a GCC. The purpose is to enhance the legal position of our approach to apply requirements.
4. 5 PRA proposes the following to improve the current fragmentary policy status and improve our accessibility and precision to our policy:
Transfer the guidelines of the European Bank of Bank (EBA) on the Connected Client to a new SS, with some revisions.
Correct the LE (CRR) part of the PRA rulebook and include the definition of "consolidated customer group" and "control".
4. 6 PRA does not propose a change to GCC's definition, except that the Scottish government, the Wales government, and the North Ireland administration will be treated as local governments.
4. 7 Definition of rule is faithful to the definition of British CRR control, but is updated to refer to the criteria for identifying the parent company to define the 2006 corporate law. PRA considers that the standards are the same as before, so this does not change the essence of the definition.
3. 16 PRA believes that these policy proposals have the same impact on mutual companies. The EBA guidelines, which are the basis of this proposal, have already contributed to proportional properties, and these elements are maintained when the corresponding part of the guidelines is transferred to PRA rules and SS.

3. 16 PRA believes that these policy proposals have the same impact on mutual companies. The EBA guidelines, which are the basis of this proposal, have already contributed to proportional properties, and these elements are maintained when the corresponding part of the guidelines is transferred to PRA rules and SS.

Elim Poon - Journalist, Creative Writer

Last modified: 27.08.2024

Regulation of the Mortgage Market Must Consider Shadow Banks · Policy Brief, Housing and Infrastructure, Money and Finance, Regulation and Competition. housing market that was the major aggregate risk of the shadow banking system. Shadow Banking and Financial Regulation. Columbia Law and Economics Working. What are the policy tools that central banks have to guarantee financial Read “Regulation of the Mortgage Market Must Consider Shadow Banks”.

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