20 June 2013
Nationwide Building Society notes today’s announcement by the Prudential Regulation Authority (PRA) on the completion of its capital shortfall exercise across major UK banks and building societies.
The PRA has indicated that, by the end of 2013, major UK banks and building societies should hold capital resources equivalent to at least 7% of their risk weighted assets. The PRA’s assessment shows a modest capital shortfall on its adjusted basis which it acknowledges is already accommodated in Nationwide’s 2013 plan.
The PRA has also set out its requirements for firms to submit a plan to meet a leverage ratio, after adjustments, of no less than 3%. The leverage ratio is a less sophisticated measure which ignores the quality of assets or the business modeli. We note the reference in the Parliamentary Commission on Banking Standards (PCBS) report that consideration should be given to a leverage ratio which recognises the different risk profiles of different business models and we support and encourage this approachii. In the meantime we will take action to achieve a 3% leverage ratio and will work with the PRA to facilitate its broad objective of strengthening the resilience of the financial services sector.
iNationwide’s business is predominantly focused on prime residential mortgage assets funded by retail deposits. This mix of business is a requirement of the Building Societies Act and ensures that Nationwide remains an inherently low risk organisation.
The Act requires:
- A minimum of 75% of loans to be secured on residential stock – Nationwide has 86.6%
- A maximum of 50% of funding from wholesale sources – Nationwide has 22.5%
ii While stating that a “substantially higher” rate than 3% should be introduced, the PCBS noted that 'if this creates problems for banks with special characteristics, they should be addressed by specific derogations not by reducing the leverage ratio for all banks.'