HSBC 2015 Annual Report Download - page 248

Report of the Directors: Capital (continued)
Appendix to Capital
HSBC HOLDINGS PLC
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specific risk drivers are taken into account. These, coupled with our economic capital framework and other risk management
practices, are used to assess our internal capital adequacy requirements.
The ICAAP is examined by the PRA as part of its supervisory review and evaluation process (‘SREP’), which occurs periodically
to enable the regulator to define the individual capital guidance or minimum capital requirements for HSBC and our capital
planning buffer where required. Under the revised Pillar 2 PRA regime, which came into effect from 1 January 2016, the capital
planning buffer was replaced with a PRA buffer. The PRA states this is not intended to duplicate the CRD IV buffers, and will be
set according to vulnerability in a stress scenario, as assessed through the annual PRA stress testing exercise.
CRD IV capital buffers
CRD IV introduced a number of capital buffers which apply in addition to Pillar 1 and Pillar 2 requirements and are broadly
aligned with the Basel III framework. This includes the CCB, CCyB, and G-SII which are all currently applicable to the Group.
These are to be met with CET1 and, with the exception of the CCyB which applies with immediate effect, are being phased in
from 1 January 2016. The CRD IV includes other capital buffers such as the systemic risk buffer which has not yet been fully
implemented by the PRA.
• CCB
The CCB is designed to ensure banks build up capital outside periods of stress that can be drawn down when losses are
incurred. It is set at 2.5% of RWAs across all banks, and is being phased in from 1 January 2016. At 1 January 2016, our CCB
was 0.625%.
• G-SII
The Group is designated as a G-SII by the PRA, and is currently subject to a G-SII buffer of 2.5% of RWAs. This is being
phased in from 1 January 2016. The G-SII buffer is intended to address systemic risk, which is assessed on an annual
basis according to a number of indicators such as: the size of a bank, its interconnectedness, the lack of readily available
substitutes or financial institution infrastructure for the services it provides, its global cross-jurisdictional activity, and
the complexity of its business model. At 1 January 2016, our G-SII buffer was 0.625%.
• CCyB
The CCyB is a countercyclical buffer which is set on an institution specific basis and calculated according to the geographic
location of relevant exposures. It is designed to protect against future losses where unsustainable levels of leverage, debt or
credit growth pose a systemic threat. Our institution-specific CCyB for the Group is calculated as the weighted average of
the CCyB rates that apply in the jurisdictions where our relevant credit exposures are located. At 31 December 2015 our
institution specific CCyB applicable on a group basis, was close to 0%.
• Combined buffer
As a result of the above requirements, at 1 January 2016, the combined buffer applicable to HSBC Group was estimated
as 1.25%.
Leverage ratio requirements
In addition to risk-based capital requirements, the Group is subject to a non-risk sensitive, minimum leverage ratio
requirement of 3%, as set by the PRA. This is calculated in accordance with the Commission Delegated Regulation (EU)
2015/62, published in January 2015, which implemented the revised Basel III 2014 exposure measure. Since 1 January 2016,
the minimum leverage ratio of 3% has been supplemented with an ALRB for G-SIIs and a CCLB, both of which are set at 35% of
the relevant buffers in the risk-weighted capital framework. As a result, at 1 January 2016, our minimum leverage ratio
requirement of 3% was supplemented with an ALRB of 0.2% and a CCLB which rounds to 0%.
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make firms more transparent by requiring
publication, at least annually, of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures 2015
are published on our website, www.hsbc.com, under Investor Relations.