Help with calculating capital floors
We have received several questions about calculating the capital floors set out in BIPRU TP 2. To clarify this area of the Handbook, we have set out more guidance below. In order to ensure the floor is applied consistently, firms should follow the calculation below irrespective of any prior individual guidance received.
Calculation
Firms using an IRB approach to credit risk or the AMA for operational risk are required under BIPRU TP 2 to hold capital resources in excess of the higher of the capital requirements calculated under GENPRU 2.2 and the transitional floor. The transitional BIPRU capital floor should be calculated as follows:
BIPRU capital floor = Scaling factor * (BI req) – GP irb - (EL-P)
Where:
Scaling factor = 95%, 90% and 80% during 2007, 2008 and 2009 respectively
BI req = Firm's Basel I pillar 1 capital requirement as calculated under the relevant IPRU chapter
GP irb = General or collective provisions which relate to portfolios on the IRB approaches
(EL-P) = The amount by which expected losses exceed provisions required to be deducted under GENPRU 2.2.236
Regulatory reporting
Firms required to calculate the floor are also required to report the floor in line 105 of form FSA003. The full amount of the floor (as calculated above) should be included in line 105 (not the excess over the Basel II requirements calculated in GENPRU 2.2).