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LONDON, July 29 (Reuters) - The Bank of England has madechanges to the way banks hold capital above the mandatoryminimum in an effort to increase transparency and better absorblosses in the event of a financial shock, such as a housingmarket crash.
The BoE's Prudential Regulation Authority (PRA), whichsupervises banks, is creating a capital buffer that will bedetermined by a bank's scorecard in the central bank's annualresiliency or stress test for major lenders.
If the PRA judges a bank's risk management and governanceare weak, it may set the buffer to cover the risk until it isdealt with, the BoE said in a statement.
Since the financial crisis forced governments in Britain andelsewhere to shore up lenders, regulators have been makinggreater use of their powers to impose add-on capital chargesunder the so-called Pillar II requirements.
This is separate from Pillar I, which refers to the core,mandatory capital minimums to cover basic risks on a bank'sbook, such as from loans not being paid back.
"Firms must hold adequate capital to support the risks intheir business, ensuring financial stability and continuity inthe provision of key services to the wider economy," PRA ChiefExecutive, Andrew Bailey, said in a statement on Wednesday.
"Pillar II capital requirements play an important role inensuring firms have adequate capital and are a valuable tool forimplementing the PRA's forward-looking judgement basedsupervisory approach," Bailey said.
The changes take effect from January 2016 and follow apublic consultation earlier this year.
The final rules are largely in line with a consultationpaper that said major banks in Britain will likely see a slightincrease in capital add-ons. (Reporting by Huw Jones; Editing by Carolyn Cohn and LouiseHeavens)
