Section 4: Mitigating risks to
the UK financial system
Chart 4.1 Illustrative example of potential changes to
Basel II minimum capital requirements over the
economic cycle(a)
(a) This chart contrasts the volatility of Basel II minimum capital requirements for a fixed
portfolio, relative to Basel I. The chart is not intended to make any statement about the level
of aggregate Basel II capital requirements relative to Basel I at any stage in the economic
cycle.
Chart 4.2 Major UK banks’ sterling stock liquidity
requirement relative to total assets(a)(b)
Source: FSA regulatory returns.
(a) Data exclude Nationwide and Banco Santander.
(b) The sterling stock liquidity requirement shown above is calculated as net sterling wholesale liabilities, and 5% of
sterling retail deposits, maturing over the next five days. Under the sterling stock liquidity regime (SLR), banks can
offset up to 50% of this five-day net wholesale outflow with discounted holdings of other banks’ sterling certificates of
deposit. The rest of the sterling stock liquidity requirement must be met with holdings of
Bank of England eligible assets.
Table 4.A Market Wide Exercise 2006: issues for follow-up
Workstream
Questions addressed
Cash
What arrangements can be made to make cash
distribution more resilient to a pandemic?
Retail
Can improvements be made to co-ordination
between high street banks to enhance the
availability of branch networks and ATMs to
consumers during a pandemic
Wholesale
Do the various concerns raised by firms about
reliance on home working undermine its potential
role in a pandemic?
Infrastructure
What are the impacts of disruption or closure of
exchanges or infrastructure providers?
Regulatory forbearance
In what areas, and when, would firms be seeking
regulatory forbearance during a pandemic?
Source: Market Wide Exercise 2006 Report, available at www.fsc.gov.uk/section.asp?catid=468.
Table 4.B Summary assessment of the main wholesale UK payment systems
against Core Principles(a)
Source: Payment Systems Oversight Report 2006, Bank of England.
(a) The Core Principles for Systemically Important Payment Systems, designed by the G10 Committee on Payment and
Settlement Systems, provide a set of minimum standards for risk management in systemically important payment
systems. See www.bis.org/publ/cpss43.pdf for a description of the Core Principles.
(b) The LCH.Clearnet Ltd Protected Payments System (PPS) enables settlement of obligations between LCH.Clearnet Ltd
and its members in twelve currencies. The assessment shown above relates to the main three currencies settled, namely
sterling, euro and US dollar. One exception to the assessment shown above is that the Bank continues to assess the UK
PPS’s arrangements for US dollar settlement partly to observe Core Principle VI, and for the US PPS’s arrangements for
US dollar settlement broadly to observe Core Principle VI.
Table 4.C Some recent testing involving the UK Tripartite Authorities(a)
(a) Tests involving only one of the authorities are not listed in the table.
(b) Testing of phone lines, back-up sites etc.
(c) Financial crisis management.
(d) www.ecb.int/press/pr/date/2003/html/pr030310_3.en.html.
(e) Business continuity planning.
(f) www.ecb.int/press/pr/date/2005/html/pr050518_1.en.html.