Recommendation 47

The PRA should consider whether it is appropriate to apply the Basel Framework to all UK domestic lenders or whether a more proportionate and tailored approach could be applied to determining capital requirements for lenders who are not internationally active. The Committee considers that such an approach would not be inconsistent with the secondary objective which is stated to be “subject to aligning with relevant international standards”. This approach will require supervisors to have an appropriate level of experience and expertise to understand individual firms’ businesses and be able to exercise judgment when making supervisory decisions ( in this regard, see our conclusions and recommendations in Chapter 2, paragraphs 128 to 132). This approach will also require a culture that is not unduly risk-averse, and which allows, with appropriate safeguards and controls, supervisors to make risk- based decisions.