1.1 This Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposals to introduce new expectations on Internal Ratings Based (IRB) UK mortgage risk weights.

1.2 The proposals in this CP would result in changes to Supervisory Statement (SS) 11/13 ‘Internal Ratings Based (IRB) approaches’ (Appendix 1).

1.3 This CP is relevant to PRA-authorised UK banks, building societies and ring-fenced banks (RFBs) holding IRB model permissions. It may be of interest to other firms, including those considering applying for IRB model permission, and other market participants.

1.4 The purpose of these proposals is to address the prudential risks stemming from inappropriately low IRB UK mortgage risk weights. An additional benefit from these proposals would be a narrowing of differentials between IRB and standardised approach (SA) UK mortgage risk weights, and a limit on future divergence. The PRA considers that this would support competition between firms on the different approaches.

1.5 The PRA does not expect these proposals to result in significant implementation costs. For those firms whose risk weights may increase as a result of these proposals, and where capital requirements are not already determined by other capital measures (eg leverage), there would be costs for the firm associated with the additional capital required.

Background