Background
2.1 Firms are required to hold capital which can be used to absorb losses they may incur. [This policy update uses '"firms" to cover the banks, building societies, and investment firms in scope of the PRA's prudential requirements for deposit takers.]
2.2 The Basel Committee on Banking Supervision (BCBS) sets international standards for the amount of capital firms need to hold against the risks they take. The BCBS has been setting international standards for banks since the 1980s and the UK is represented at the BCBS by the Bank of England and the PRA.
2.3 Following the 2008 global financial crisis, the BCBS was asked by the G20 to develop a series of reforms to strengthen international banking regulation called Basel 3. The first set of these reforms included improvements to the amount and quality of capital held by firms.
2.4 The final part of these reforms was finalised by the BCBS in 2017 and addresses how firms calculate capital requirements for their risks. These refor
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