Welcome to the Treasury Select Committee on Wednesday 21 January 2026. We are pleased today to have the Prudential Regulation Authority in front of us as we discuss its work in one of our regular sessions of the year. I am delighted to welcome Sam Woods, the chief executive of the PRA, for his last outing in front of the Committee, though, of course, Mr Woods, something could happen between now and June that we need to haul you in for. We reserve the right to do that. We will discuss how it has been for you in a moment. He is joined by David Bailey, who is the executive director for prudential policy at the Bank of England, Marjorie Ngwenya, who is an external member of the Prudential Regulation Committee, and Antony Jenkins, who is also an external member of the Prudential Regulation Committee. We think this is your last outing in front of us, Mr Woods. What would you say you have achieved in your time at the PRA?

Thanks for that question. I have five months to go, so I am very much focused on making sure those go as well as they possibly can.

No mistakes in the next five months?

Yes, exactly. There is quite a lot going on around us, as we can all see. In terms of things that have gone well, I would just point to one, which is more important than all the others. We have—“we” is very broad here and includes the Committee and a lot of people in the industry, but with the PRA in a central role—rebuilt the banking system following its collapse in the global financial crisis. That has been a very large and very challenging task. Both Dame Harriett and Mr Glen were involved in that as well, in ministerial seats, but we have had a big role. I feel that has gone well. The banking system is much stronger than it was, and commercial returns have caught up. During that period of change, commercial returns tend to lag. As we sit here, the banks are earning their cost of capital. They have a price to book of over one. One should never be complacent about this, but if I pointed to one thing that we have done that has been very important, I would point to that.

What do you think has not gone so well? If you were giving advice to your successor, what would it be?

I would probably pick out a couple of things. I am looking a little bit at Mr Glen.

It is like having the ghost of Christmas past, but he is very present too.

We had what it would be fair to describe as a pretty spectacular row with the insurance industry and the Government over the reforms to Solvency II. I remember Dame Harriett asking me in this Committee whether I was going to resign over it, which was an interesting start to that session.

I have been terribly soft on you, then. Dame Harriett will have me over the coals later.

Please do not ask me again.

I have some more questions.

Oh no. The nightmare never ends. My reflection on that is that the PRA and I—the external members were heavily involved in this as well, and it may be that Ms Ngwenya wants to contribute on this point too—were right to make the argument we were making, or something like it, because we are the agency charged with policyholder protection. The Committee, in a way, should be reassured that we are prepared to put our hand up in those kinds of conditions and make that sort of argument. However, on reflection, I was probably a bit naive in some of my handling of it, in terms of preparing the ground and quite how far we pushed it. I should say that Mr Glen was always a pleasure to deal with, despite the fact that we were having such a strong disagreement. What does not kill you makes you wiser. If I was doing the same thing again and taking the same substantive position, I would handle it somewhat differently. That is one thing. The other thing is that we have done quite a lot of work within the PRA on our use of technology, data and those things—Mr Bailey has been involved as well, and Mr Jenkins pushes us a lot on this, given his technology experience. We have done some good stuff and made some good advances. If I had longer in this role, which obviously I do not, I would be interested in pushing further on that, partly because the tools around us have moved so much. I would highlight those two things. I do not know whether it is appropriate to bring in either Ms Ngwenya or Mr Jenkins.

We are going to keep you in the spotlight for a bit longer, Mr Woods. They will get their chance. If you were talking to your successor now over a cup of coffee or whatever, before they come in, what would be your top tips for them?

It is unlikely that they are going to want any top tips from me, to be honest.

You can do it here, so they do not have to ask.

You may think that I am saying this to please the Committee, but this is genuinely what I would say, because this is the most important thing to remember. “If you do this job, you are working for the British public. All the powers that the PRA has come from Parliament, and you are accountable to Parliament for how you use those powers to advance the interests of the British public. Amid all the lobbying, all the pressures and the thousands of meetings that you will have with very eloquent and distinguished people from within the financial services sector, you need to keep that thought in the front of your mind.”

I would expect nothing less from an experienced civil servant, but that is good to hear. You are the chief executive of the PRA, but you are now part of the Bank of England. Do you think that separation is necessary, or would you be better as a deputy governor overseeing this area?

This was quite a wise thing that Parliament did, making this role the chief executive of the PRA. First, that is because the objectives of the PRA, while generally consistent with those of the Bank of England, are actually quite distinct and, in some instances, will pull in different directions. Secondly, at the time, as I recall from the parliamentary debates when the PRA was created, there was a concern—and it was a well-founded concern—that, under the previous regime, where the PRA had been effectively part of the much wider organisation of the then FSA, the organisation had become something of a backwater. It had not had enough focus. The best way to bring that alive for you is that, at the time that RBS went bust, and it was then the biggest bank in the entire world, we had basically two people doing the PRA’s job for RBS. Today, we have a team of roughly 20 doing that job for HSBC. There is no perfect number, but two is definitely too little. There was a concern in Parliament around whether that could happen again, given that we are moving this from one place into a wider organisation, which is the central bank. The decision was taken to do two things. One was to make the person who does my job the chief executive of the PRA to help with that separate legal personality. As a personal matter, I can tell you that it focuses the mind a lot. I obviously collaborate extensively with the other governors, but it slightly changes the way you think about it.

You are the accounting officer.

Yes, it sharpens the sense that your responsibility around the PRA is a particular and very important one. Secondly, Parliament did a very unusual thing. I am not aware of this in other areas. Maybe it exists, but I have never found it. The Prudential Regulation Committee has a specific responsibility, unlike the other statutory committees in the Bank, to make an attestation to the Chancellor, which we do in public every year, that we have enough resources in the PRA. Those two things come together to serve as a protection against that risk. For those reasons, I think it is quite a good idea.

That is protection, but the Government came in and we saw the letters that went out the Christmas before last. Then we saw changes to regulators. The Prime Minister has talked about reducing regulation and getting rid of regulators. Do you think you are independent enough to survive that? Have you had any hints from the Treasury that there could be any changes to what you do? We have touched on some of the changes you have made to how you do things, but what about in terms of the actual structure of the organisation?

I believe so. There is a very intensive interaction with the Treasury, as you can imagine. That has probably intensified a bit since Brexit, for the simple reason that a third party, in the form of the Commission and all its associated agencies, left the table and we have more powers. All the lobbying is coming to us and the Treasury more directly. That has become more intense, but I have never found it to be in any way inappropriate. I have never sensed that there is a challenge to our independence. There was a debate kicking around, I think when Mr Glen was still Economic Secretary, about a call-in power and whether it would be a good idea to have a mechanism to make regulatory decisions in our field more routinely callable up into the political sphere. In the end, the Government decided not to proceed with that and not to bring that process to Parliament. I think that was a wise call. I do not get any sense that there is a huge desire for that, so I think we are on reasonably solid ground.

That is one for us to watch for. Before I bring in Mr Glen briefly on this and some other points, there are a handful of people who could qualify to be Governor of the Bank of England, and your name is one of those. Is that something you aspire to?

That is a very kind comment, thank you. The truth is that whether I go for that job will depend on what I am doing when it comes up, which is in 2028. Happily, the job is currently filled extremely ably, in almost everyone’s assessment and certainly mine.

I was not suggesting for a minute that the Governor is about to go. I should stress to anyone watching that his term ends in 2028, but it means that the selection process will start next year.

I have an open mind about it, but it will depend on what I am doing. I may well be doing something else that I am very much committed to. That is an incredibly demanding and very difficult job, and it will always have an amazing range of candidates going for it. If you looked around and tried to find the person that you thought was the ideal candidate today, their chance of actually becoming the Governor in 2028 would be a low percentage.

Thank you. That is an honest answer. There is a vacancy at the Office for Budget Responsibility. Is that tempting for you?

I have given it no serious thought whatsoever.

That is very interesting to know. Does the private sector beckon, do you think?

I have an open mind about it. As you mentioned at the outset, I have five months to go. The appropriate thing for me to do is focus very much on completing my term, for the public interest but also as a personal matter. Obviously, if something goes wrong, that could be bad. I have an open mind on public or private. The Committee may or may not be aware, but I am originally from New Zealand. We have been here for a long time now. I think we are quite likely to stay in the UK for all sorts of reasons, not least that we very much like it here and this country has been very kind to me and my family. I am expecting it to be UK. It could be public or private sector.

Thank you for being so candid with us.

Mr Woods, I would concur with your assessment of our previous dialogue. I very much respect the way you conducted that dialogue. Can we turn to the matters at hand around your role at the PRA in terms of supporting economic growth? We have seen the letter that you wrote to the Prime Minister, and last year you had 23 consultation papers. Which ones do you think are likely to lead to a material change in conditions for the sector as a whole that will move the dial in a meaningful way?

Maybe I can offer a brief comment, but if I might, I will bring in Mr Bailey as well, because he is in charge of all our policy and consultations. I was thinking about this question a week or two back, when I was reading through our business plan for the current year—we are coming towards the end of the year—to check that we were doing what we had said we would. There are 23 initiatives—I think it is a different 23; it just happens to be the same number—that are mentioned, some of which will be in the consultation papers. Mr Bailey will explain how we engage our objectives in all of those. I tried to look at it more from the sense of what was driving us to do those things. Was it more the competitiveness and growth considerations, more the safety and soundness, or is it impossible to say? When I looked at it in that more informal way, rather than the formal way that we looked at it, I found that there were seven for which I genuinely could not tell you which it was. For instance, our branching policy is very important for safety and soundness and very important for competitiveness. It is a genuine mix of those two things. Of the other two thirds, so the other 16, as it happened, in my assessment, half were motivated by our new objective. The best example would be the banker remuneration changes that we made. That is very much a competitiveness issue. You can debate the growth angle on it, but it is competitiveness. The other half, so the other eight, were very much safety and soundness, for instance our life insurance stress test we did this year for the first time while disclosing individual firm results. You remember that that came out of the Solvency II debates. That is definitely a primary objective thing. I thought that was interesting. When I looked at it in that way, it is kind of a third, a third and a third. In steady state, you would not necessarily expect to have such a high proportion on a secondary objective, but we are still building up on that side, hence there is a bit more of that. If I might, could I bring in Mr Bailey as well?

As Mr Woods said, when we are defining our policy and looking at individual policy options, we think about all the objectives we have, whether that is safety and soundness, as well as competition or competitiveness and growth, our secondary objectives. We look at the proposals in the round. Some things are more weighted to the primary objective and some more to the secondary objectives. There are specific things that we have done that have been really motivated by the 2023 competitiveness and growth objective, for example—Mr Woods mentioned the changes we made to the remuneration regime. Those have had a significant impact from a competitiveness perspective, in terms of making the UK an attractive place for banks to locate staff. Our strong and simple regime for smaller domestically focused lenders significantly simplifies the prudential regime in a way we could not have done previously, which will result in a significant reduction in costs for small UK lenders, enabling them to grow and support their customers. There is the way that we finalised our Basel III proposals that were published on Tuesday, in particular around SME lending, making sure that we had an approach that was proportionate for those exposures and supporting banks’ ability to support SMEs. On the insurance side, we launched, towards the end of last year, what we are calling an investment accelerator, which enables insurers to take advantage of productive investment opportunities far quicker than they could do previously. All of those were significantly driven by the considerations around growth and competitiveness resulting from the secondary objective.

We hear sometimes, when we talk to people in the City, that that sounds very reasonable but they say that there is, overall, a lack of not so much urgency but determination to put emphasis on growth‑enabling activities. A moderate reduction in, say, some of the reporting requirements for an entity that is not going to make that much difference anyway gives you, collectively, as an organisation, something to point to, but it does not really move the dial. They would say that some of the harder things—and we will come on to talk about Mr Woods’ recent speech on foreign sovereign debt in a moment—are not really grasped. When we think about Basel 3.1 implementation in different ways across the US and the EU, the PRA is not being radical enough in terms of addressing the opportunities that need to be taken if we are going to remain competitive. How would you respond to that general point that UK Finance or some of its members would put to us?

We have done an awful lot of work and put a lot of focus on this. We have changed the way the organisation operates internally and put a real focus on competitiveness and growth. It is incumbent upon us to make sure that our regulation is as efficient and proportionate as it can be, while making sure that we retain the level of resilience that is consistent with sustainable economic growth over the medium term. That is really important. We have taken some really significant steps. Some of them I mentioned. Another is working with the FPC on the bank capital assessment that was published in December. There are some big, significant areas that we are looking into as part of the follow-up to that, for example potential changes to the leverage ratio, which will make a significant difference for the banks and the industry in enabling them to support their customers.

We are going around all of our toolkit, particularly the rules, in light of the fact that we have this new objective, have left the EU and have been operating quite a lot of this machinery now for about five or 10 years. We have a higher confidence that we know which bits really matter and which bits could be cut away in the spirit of our new secondary objective. We are trying to do that quite thoroughly. We have done it very thoroughly on the Solvency UK side. We are looking at all the items Mr Bailey just described on the banking side. We have also been doing some very important stuff operationally. One industry complaint—actually probably one of the fairer complaints—was whether we could go a bit faster on things such as approvals. To give you just one stat on that, we routinely do more than 1,000 senior manager approvals every year. In the last quarter, the average time we took to do one of those was 30 days. That was down from 59 a year ago. We are still doing them properly. We are checking them, but we have sped up. We are doing those sorts of things. My last point is that industry will, of course, make that case, but there are some things that we should not do and should resist. At some point, as we churn through all this other stuff, those other things are going to start to surface a bit more. That is my guess.

I recognise that. I, as a former Minister, was sat in between you. It felt like sometimes I got an extreme view of one side and an extreme view of the other, and I sat in the middle trying to mediate. It is technically quite complicated to do that, and I would be sympathetic to all my successors, whichever Government they are in. Can I draw your attention to something specific on consultation paper 16 with respect to the disclosure of resolvability resources, capital distribution constraints and the basis for firms’ Pillar 3 disclosures? Obviously it has to be technical, but that introduces new reporting requirements. It is not all going one way. In my time, I think there was a grid that we tried to bring up between the FCA, the PRA and other regulators to look at the overall number of initiatives. Does that still exist? Overall, how do you reconcile the volume of reporting requirements that regulated firms have to live with?

I will say a word, and then Mr Bailey will come in, too. On the insurance side, we have cut it by a third. That is what we have done on the reporting. That was agreed as part of the package.

The ABI will be happy when we see them next.

I would never claim that, but I think they would accept that that has occurred. On the banking side, we just cut 37 templates in December. We are now doing some further work—deeper work, actually—on whether we could make the way that we collect data from banks much cheaper, which Mr Bailey may want to come in on. We are going to look at mortgages first. I am glad you have raised reporting as an example, because we should not have a position where we cannot ever collect anything more at the same time. A good example is that we have just brought in some liquidity reporting on the insurance side. Following the LDI crisis and all the events around that, we decided that it would be quite wise to have a bit more on that side. We had a lot of discussions with the industry. We came to a pragmatic resting point. I think that they were okay with it, but that was unabashedly an increase, but one that was justified.

I have two points. If I can respond on the specifics that you started with on the resolution side, that consultation was part of a package that included some quite significant changes to the resolution regime. I know that you had Sir Dave in yesterday talking about those. As part of that, the overall emphasis was on making sure the resolution regime was proportionate. It raised a number of the thresholds significantly, taking some firms a long way away from having to hold MREL and be part of the resolution assessment process, so all of that making it more proportionate. It went as a package and we deliberately framed it as such. More broadly, as Mr Woods has pointed out, on reporting, we are looking very closely at that, particularly on the banking side. The changes we made that Mr Woods has alluded to are a first step, but we are working very closely with colleagues at the FCA, but also industry, to overhaul that process and make sure that we can collect the data we need at the lowest possible cost. That includes changes to the way firms report and changes in technology on our side to make ourselves more efficient in terms of how we use that reporting. We think very carefully on that front. What we did last year was the first step of what I see as a multi-year process to completely overhaul the banking reporting regime.

Thank you. I have another question for Mr Woods, in terms of your Mansion House speech, in which you referred to this proposal to provide capital relief to banks on their portfolio of foreign Government debt. You used quite a striking phrase: “would be equivalent to ripping off our jacket, warm hat and gloves and throwing them all over the nearest cliff”. That seems an extremely strong counter-view to some in the banking sector who would say that you should look somewhat sympathetically. Is there anything of any merit in what was proposed?

On the language, it was an after-dinner speech. The Chair was there. You have to make it listenable, and that is not always the easiest thing to do with prudential regulation.

People will remember it, at least.

You achieved something: you got it mentioned here.

You are right that I feel strongly about that point, and it is for a couple of reasons. One is that the leverage ratio is extremely important because, as members of the Committee know, it is one of the two ways that we maintain the level of capital in the banking system that is required for the public interest. The first reason to be cautious about the idea of taking Government bonds out of the leverage ratio is that it is a very significant brute weakening of that regime. To give you a sense of that, our banking system runs at about 20 times leveraged, so it runs at a 5% leverage ratio. Some of that 5%, by the way, is met by non-equities, so the equity leverage is actually higher. If you just took out those bonds, crudely, first order, before all sorts of behavioural effects, you might increase it by about 80 basis points, so a move from 5% to 5.8%, which is actually pretty significant. That is one reason not to do such a thing lightly. The second—and this may, in fact, be more important—is that banks can lose a lot of money on Government bonds, even if the issue is sound. The classic case of this was Silicon Valley Bank, which was holding a bunch of long-end treasuries in its banking book. It had done that because it had a big influx of deposits and it went to the long end on treasuries to get a bit more yield. Those long-end treasuries move around much more in terms of value as interest rates move, so, with a change in the rate environment, they were underwater. The bank thought it could tough it out, because they were not marked to market, and in US capital requirements that was not captured. We would have it captured in ours. Depositors thought differently. They saw this unmarked loss and thought, “This is a problem”, and started to take their money out at high speed. At that point, it became necessary to liquidate the bonds and crystallise the loss. Taking it out of the framework in that way, particularly at a time of quite high sovereign indebtedness in many western jurisdictions, would be a very bad idea.

Some who would push back on that would say, “In other jurisdictions, they do not necessarily take the same approach.” If you are in a global institution and running an entity based in London, you might say, “We are at a disadvantage to secure more investment to grow business here.” That is crudely, to make it accessible, what people would say. Your answer would be that you are responsible for the probity and integrity of our system and the stability therein, and that this is not a risk worth taking, even if it is happening elsewhere.

That would be part of my answer. At the time I made that speech, this debate was live not only in the UK but in the US. Since I made it, my colleagues in the US have made a very sensible decision around that. They have softened their leverage ratio requirement quite a lot, but they have done it in the numerator—the number that firms are required to meet. On that, they were way north of us. They have basically come down to the sort of level we were at, but they have decided not to go ahead with the idea that was kicking around in their system of taking treasuries out. Had they made a different decision on that—and this was part of the reason that I thought it was worth making the point in public—that creates quite a difficult situation. If the US made that move, it would probably be quite difficult for other countries to resist it for the reason that you just gave. That would cascade globally, but our American colleagues have not done that, and that makes the position easier.

My final question before I pass to my colleague is around smaller banks. We have had, I think, 40 new institutions over the last decade. You talk about strong and simple. You talk about the attempts to try to make it an easier path to growth. One enduring frustration is how you really achieve that, because there are, in the system as it has existed, real cliff edges and barriers to move to that next level. How could you reassure us that the changes you have made, or will make, will likely lead to greater real competition for those smaller entities to meaningfully grow and compete with the small number of large banks we have?

That is a very important question. I will say a word, and Mr Jenkins might want to come in on the wider issue of competition in the market, given his experience. We have a stronger track record on entry, as you say. We have authorised 40 de novo UK banks in the life of the PRA. We have actually authorised over 80 banks overall, but 40 of them you would recognise as start-ups. This Committee has been on our case on that from the get-go, because we had that competition objective from the start. We have a good and strong story there. We have a less good story on scale-up. It is not all in our hands. We are one factor among many. We have agreed to set up a scale-up unit together with our colleagues at the FCA. That may be quite helpful. That is being populated at the moment. We have also been doing quite a lot of work around thresholds. The most important one is done by our colleagues on the resolution side of the Bank. It relates a little bit to what Mr Bailey was talking about in moving up the MREL threshold. That is the requirement for smaller banks to issue debt into the market so they can take the hit rather than taxpayers. That is a bit of a ledge. We have moved the ledge up. The ledge still exists, because we think we still need that protection. We are also looking at the possibility of bringing in some automatic indexation into our thresholds, so that they all move up a bit more automatically, which again, I think, will help. I wonder whether Mr Jenkins wants to come in on the market structure question.

It is fascinating to look at what has happened since the financial crisis. The market in this country was dominated by large banks. We have had a number of very successful start-ups. I will not mention the names specifically, but they have captured a very significant part of the personal account market. In other parts of the market, there is still competition to be gained, particularly around mortgage lending. Also in the small business market, we have seen good gains from the start-up and challenger banks. We think that competition is very important. It is important for two reasons. One is because it provides more choice for consumers. Frankly, the other thing is that it keeps the bigger players sharp. We have seen that with things such as mobile banking, for example, where the offer from the big banks was pretty poor. They have had to up their game to compete with the newer start-ups. One thing that the PRA has done very well is to encourage competition in the market and support it where we can, but Mr Woods is right. We cannot flex the fundamental framework that sets various levels of capital liquidity requirements based on size and complexity for the purpose of competition. We have to maintain the integrity of that.

I was remiss at the beginning, because I should have asked a colleague and myself to declare our interests. Would Mr John Grady like to declare his interest?

I have a family member who works for Allied Irish Banks. We have now declared our interests.

Mr Woods, I wanted to ask you some similar questions that I asked the Governor and members of the FPC yesterday. I wanted to ask you as the chief executive of the PRA but also as a member of the FPC. The FT reported last year that several senior members of the Bank had left the climate risk department, saying that staff were not being empowered to take climate risk seriously within the Bank. There was a concern that there had been loss of staff hours of up to a third working on this area and that the technical expertise had been severely diminished. Do you share that view? What do you make of the broader expertise in the Bank, but also in the PRA, to assess climate risk?

Climate is an area that we have paid quite a lot of attention to. The best way to judge whether the PRA still knows what it is talking about on climate is not by what I say but by looking at our most recent publication, which is SS5/25, which is our updated supervisory statement, which we have not done since 2019. That is a credible intervention in the market. We have asked firms to up their game on the governance side, on the risk management side and in their use of scenarios and some of the data issues that have arisen. There we have looked at how practice has moved on since 2019, when we last did it, to today and moved the thing forward. That is an appropriate way for us to invest there. Where it is possible that the sort of view you have been hearing comes from is that it is probably true to say that we loaded up heavier on climate as we were getting up to speed on it. We have been able to economise a bit, and we have a bit less headcount on that activity than we had previously. I should also say on climate—and this may be mistaken on my part—that, as a topic, I find it quite different from some of the other things that we talk about, such as liquidity and capital, where there is quite a strong tension between the public and the private interests because of the need to drive for maximum ROE on the private side and our need to protect financial stability. I think of climate as quite different. It is more of a joint endeavour between us and the industry. How do we want to take out this risk? We are always super careful to stay in our lane, because there is a much bigger debate about climate. Our interest is only about how it affects the risks that we are in charge of and that is where we limit ourselves.

Can I come in on that to emphasise the point about it being a joint endeavour? In the implementation of our expectations we, jointly with the FCA, formed the Climate Financial Risk Forum, which is an industry grouping. Essentially, we collaborate with industry on the implementation of our expectations. A lot of the hard work is done jointly through such forums, in terms of guidance to meet our expectations, which are produced by industry for industry. We have seen really good engagement on that. If anything, that has been maintained over the last five years.

You referred to the policy statement, PS25/25, and the point around a joint endeavour. I have heard concerns that, compared with a previous iteration, the expectations referred to actions being needed by Governments, firms and a range of other actors. That language has not been repeated in this updated statement, the argument being that actions are needed across all actors. I wondered how you responded to that concern, given that you just said it is a joint endeavour.

It is a joint endeavour with industry, but our expectations are on the firms that we regulate, so, from the PRA’s perspective, the banks and the insurers. Let us put into context what we were doing when we were reissuing our supervisory statement. We set out our original expectations back in 2019 and then we had a series of engagements with firms and industry more broadly on how they were implementing those expectations. Industry came to us and said, “There are areas we would appreciate more clarity”, and we identified areas where firms were not fully meeting our expectations, so we went through and revised them. A big part of that was around proportionality, so making sure that it was clear in our expectations what was expected for firms that have significant exposure to climate risk versus those firms that do not. They can flex the amount of effort, time and focus they put on the work according to the scale of risk that the board sees within the firm and its business model. We very carefully focused those expectations on firms, because, as Sam said, we are very careful to make sure we stay within our swim lane. That involves making sure the expectations are very clearly on the firms that we regulate.

How do you ensure that “proportionate” does not become “insufficient”? How do you determine what “proportionate” means?

We have asked all the firms to assess where they sit against our standards by the middle of this year. Then, through our standard supervisory work, we will do sampling and reviews of whether firms are meeting them. That will give us a good sense of where firms sit against our expectations. That is our standard supervisory practice. We do not go into every firm and always ask them to demonstrate their compliance, but we will have a look at the cross-section across industry.

I have another broader point for context, which may be useful to share. In the mid-2010s, at the time I was running the insurance area within the PRA before I became the CEO, there was a period when we were certainly pushing harder on this, or at least as hard as anyone else globally, but probably harder. We were getting up to speed. We were working it out. We wanted to push things forward. It is partly because of the market we have here, particularly on the London market side. We have a lot of climate risk coming into our market. If you look at how things are positioned now, the world around us has changed quite a bit too. Now it is probably fair to observe that our colleagues in the EU and the ECB are probably leaning a bit further forward than us on this in a couple of ways, particularly in their use of a thing called periodic payment orders and some tools that they are using, which we probably would not use in this country. Our US colleagues are not really engaging on this at all any more, and we are somewhat in the middle. I feel that is probably quite a sensible place to be, to be honest.

Going back to one of the questions I asked yesterday from an FPC point of view, the Government put additional focus on climate and, for the first time, nature in the remit letter. If I am being honest, I do not think I was really able to determine, from the answers I got yesterday, how the Bank overall has responded to that additional focus in the remit. I wondered whether you could say that and, just very quickly, whether you think the PRA should look beyond climate risks and at broader environmental risks as well.

I do not know whether anyone else on the panel wants to come in on those two points. On the first, the main piece of business that we were thinking about doing was the SS5/25 that we just spoke about and, in effect, toughening up our requirements. It was absolutely relevant to that, particularly given the angle that Mr Glen was coming from. If we are going to toughen the requirement, we have to have a good reason for it. I would say that the bar for that has generally gone up in the last few years. It was absolutely relevant to that that we had that extra conditioning from the Government in its steer to the committees at the Bank, so it played in that way. We do not have an immediate plan to repeat the exploratory scenario we did on the climate side, not because we have lost interest in it, but because we do not think we will learn that much more at the moment from that. Forgive me, what was the second part of your question on?

It was the point about nature and the environmental risks.

It was whether we should go broader. This is my personal view, but with my CEO hat on, not a citizen view. I do not think that we should. That is probably not the answer you want to hear. The reason is that you have to have a degree of focus for a regulator to be effective. It is appropriate that we brought in climate in the way that we have. If Parliament told us to do that, of course we would do it, but I worry that you would just reduce the effectiveness.

On that point, from an FPC point of view, the Government have asked the Bank to do that. They have added nature to the remit. How has the Bank responded?

There are two things. We have not issued, for example, supervisory expectations in the space of nature, but we expect boards to think about and manage all the risks to which their business models are exposed, which would include nature. I mentioned the Climate Financial Risk Forum a little while ago, which is the joint collaboration. Within that, there have been discussions on nature, and industry has voluntarily taken forward a set of work on nature within that. There are things happening in that space, but as Sam said, we are prioritising according to the risks that we see to be the biggest.

The area that is most relevant is the London market. The London market is insuring all sorts of nature-related risks. I do not know whether Ms Ngwenya wants to come in at all on the London market side. She may not, but just to give her a chance if she wants to. That is all being thought about, because we have to include it in the reserving and the stress testing that we do for insurers on that side. That is where I see it most frequently.

I was going to turn to Ms Ngwenya, because your international experience is quite interesting in this respect.

I would agree with Mr Woods on not necessarily including it as an area of focus for the PRA, but rather to leave it to firms to decide whether those risks are material for them. We would expect them to bring them into their risk frameworks and governance in the way that they would any other material risk. Our responsibility would be to engage with those firms in our supervisory conversations.

Mr Woods, I want to come back briefly to Mr Glen’s points around sovereign debt. I take your argument on the fact that, even though this is, in effect, close to a risk-free debt that we are talking about, you are still getting losses on the bond markets. Would the Bank say that the fact we have mark-to-market accounting under IFRS means that the risk is more present here, and therefore they are being more prudent?

A good argument for the banks to make on this topic would be that we in the PRA attempt to capture that risk on Pillar 2A. Also, the interest rate risk for bonds of that kind, which are held in the trading book, is intended to be captured by our market risk framework. Those would be reasonable arguments to make. However, I come back to the broader point, which is that this is an area where, if one country does it, it probably happens globally. It would depend on the country, of course, but if a major country did it. In effect, you would be turning a blind eye at that point to sovereign risk and traded sovereign risk on the leverage side of our requirements. The history of the bank-sovereign doom loop is very rich and littered with all sorts of catastrophes. Why would we want to go there?

Is the bigger picture not that the banks are trying to weaken the leverage ratios? They are trying to find ways to do that. In their view, the minimum leverage ratios are too high. Would a cleaner way to address this issue not just to either say you have your leverage ratios correct, in your opinion, or slightly tweak them?

I think I agree with your comment, because the place to have the debate is on the numerator. This denominator thing is just confusing, risky and dangerous. There is a legitimate debate on the numerator, and Mr Bailey referred to it a moment ago. We have published—and this is the first time anyone has done this from the public sector side—side-by-side comparisons of our risk-weighted requirements and leverage requirements with those in the US and the EU. One thing that jumps out of those is that our requirements for our domestic banks on the leverage side are higher than the equivalent domestic requirements in either the EU or the US. We published that. We gave the bank lobby a stick with which to beat us, if you like, but we thought we should be transparent about how that looks. It is also the case that, despite the fact that our requirement is tougher, our domestic banks are also more highly leveraged than those in other jurisdictions. That is the debate.

They are much closer to leverage ratios.

Yes. We have a good chart on this in the capital review. We can send it to you.

If you reduce your minimum capital ratios, it is impossible to say how the banks would react, but they would likely increase their—

Yes, that is possible.

Let me flip that on its head. You are effectively saying that UK banks have higher risk tolerance than EU and US banks.

It depends a bit on which assets you have. It is true that our banks tend to be more mortgage-heavy than the US banks. It is fair to say that you could have two banks, one running at higher leverage than the other, but if the higher leverage one was invested all in mortgages and the other one was invested in something very high risk, actually you could have the same risk tolerance. This is the debate we are going to have in the next round of the capital review at the FPC level, but the PRC will be very involved in it. If I have time to bring in Mr Jenkins, I think he has some views on leverage. It is also important that we keep a bit of an open mind as we go into that.

Before I turn to Mr Jenkins, am I reflecting you correctly if I say that, in effect, we are saying that UK banks have a higher risk tolerance than EU and US banks in terms of how they appear on their balance sheets? Therefore, there is maybe a case for having stronger leverage ratios to reduce that behaviour.

I would not go quite that far. This point around mortgages is a good one. We have a very mortgage-heavy system. We have published a chart that shows that our regs are undeniably tougher in that area, so we have teed ourselves up for an argument about it, but in the same chart we show that our banks run at a higher leverage, despite that. That is the debate. We have implemented the leverage ratio in a quite specific way here in the UK. It is not the only way you can do it. You could do some different things. I feel open to the idea that we should review and look at it. Are there some changes we would like to make? I do not think we should immediately assume that, because that requirement is tighter than other jurisdictions, it is definitely massively too high. It might be, but it might not be.

It is also worth noting that, in the US, most mortgages are securitised off the balance sheet of banks through organisations such as Fannie Mae and Freddie Mac, so they do not affect the leverage ratio of the banks there. That is a fundamental difference in the way the system works. The point I would like to make is that it is important that we look at the system in the round. For the industry, it is in its interest to effectively allocate capital to its activities, and that is appropriate for it and its shareholders. As a regulator, we need to look at the risk-weighted approach, which inevitably injects an element of modelled subjectivity, because you cannot perfectly model things, however good your statistical database and tools are. That is one view of how capital is matched with risk. The leverage ratio is another view, because it takes out that allocation mechanism there and gives you a broad view of the risk on the institution’s balance sheet versus the capital available to support it. As Mr Woods has said, we should never forget that this system is 20 times leveraged. It does not take much to go wrong for that to cause a real problem. In my view, having been in the industry for a long time, post the financial crisis there have been a number of challenges that we have faced economically and geopolitically. Every time that has happened, there have been shock absorbers in the system, whether it is monetary policy or fiscal policy. I do not think we can necessarily infer from post-crisis times that everything is working perfectly. As Mr Woods would tell you, banks have failed in that period, notably Credit Suisse and SVB. The way I would look at this as an external member of the PRA is that we need to look at these things in balance and make sure that we do not just cherry pick the part of the system that is to our advantage, whether you are in the industry or as a regulator. We have to satisfy ourselves that we have the right balance between risk and protection in the interests, frankly, of all your constituents.

I would be inclined to agree with you. Is it possible that all this language, including from Downing Street, about deregulating financial services has emboldened the industry to be aggressive in its requests, at the expense of the risks that you articulate? I am interested in the views of the whole panel.

It would be quite extraordinary if you had the political setting that we currently have from our Government and people running private institutions and their representatives did not attempt to push hard. Why would you not? I think we would all do that in that position. To be clear, that is also their job. We obviously have a lot of that. The debate has changed a lot. I would also say that it is a natural cycle, in the sense that we have been through an enormous strengthening of the regime and that has also involved an enormous expansion of the regime. It is my belief, at least— and I think probably a shared view among members here, but we will see—that there is quite a lot that we can do there to prune the regime, make it work better and streamline it. We just did something last week.

Your list of consultations highlights that.

Yes, so I think we can do that without doing things that are dangerous. Then it is the things that are dangerous where there is a more lively public debate.

As Mr Woods has said, it is very reasonable for firms to come to us with requests that would require us to deregulate. At the same time, our role is to push back against that somewhat to ensure that we do not end up with another financial crisis. That would be regrettable. In times when things are going well, it makes sense to want to pull back, but our stresses tell us that we have calibrated things about right.

We look at any proposals very seriously and have to produce a cost-benefit analysis. When we put forward consultations, we exactly articulate, against our objectives, what the impact is expected to be, and we do not just hear voices from one side of the debate. As we have seen over the last week, we hear voices on the other side pushing in the direction of resilience. We need to balance those and take them all into consideration.

Thank you for the question. There are a number of reasons we publish our guidance. I am going to put statements of policy and supervisory statements under the same banner of guidance. Some things set out what firms can expect of us. For example, we have set out our statement of policy on how we do cost-benefit analysis or rule review. Some of those things we are mandated by legislation to publish. Another reason we might publish guidance is because we have taken a look. As I described, with respect to climate, we have taken a look at how firms are meeting our rules and we think that they could benefit from further clarity. Then there are other areas where firms come to us and say, “We would appreciate you issuing more guidance so that we understand how to meet the rules”. We should be very clear on the legal basis. The rules are the rules. They are the things that firms have to meet. The supervisory statements are our guidance on ways in which firms can meet those rules. If firms have other ways of meeting our rules, they are free to choose to do that. What we publish in our supervisory statements is guidance on how firms can meet our rules, rather than things that we can enforce against if firms do not demonstrate they are exactly in line with our supervisory statements.

It is a fair concern, because it implies that that is the way we would like to see it done. However, firms are free to explore other avenues. The purpose of the guidance is to remove the uncertainty that firms might have around implementing our financial regulations, which takes away friction and unnecessary cost in the system.

We have to look at the range of firms as well. There are very large, sophisticated firms, middle-market firms and very small firms. They may approach this topic differently. The intent of the supervisory statements is, as my colleagues have said, to be helpful and to provide guidance. If more clarification is required, that can always be gained from the supervisors and the interaction with the supervisors. I do not think that it inherently prevents innovation in the banking sector.

No, I do not think there is any empirical evidence to suggest that in terms of what has come in front of us. The intent is to be helpful, not to be a drag on innovation and creativity.

In terms of the consumer benefit point that Mr Grady has just made, what would need to change for building societies, for example, which tend to be more popular because of things like their remaining branches being open locally—all the sorts of things on which they have perhaps appealed to the general public—to be able to offer more innovative products and extend a little more into what actual consumers want to borrow for?

Maybe I will say a word. Mr Bailey may want to come in too. It is worth stepping back on the building society sector, and what is actually happening there, for a moment. The sector has more than doubled in size over the last decade while consolidating, so we have 42 building societies today with assets of over £660 billion. In the next layer down, about half of the deposit takers that we supervise are credit unions. There is a similar kind of picture. That number has gone down by about 100 over the last 10 years, but the value of the assets has gone up. It has not quite doubled, but it has got to £4.9 billion. We see that picture of consolidation. Interestingly, on the building society side, we have had two transactions where they have taken over banks in recent times. The sector seems to me to be doing quite well in various ways, but it does have a number of challenges. One in particular, which I think goes to your question—and it may be that Ms Ngwenya wants to come in on this as well, or the broader topic—is that their need for technology is sometimes very difficult for them to be able to afford to do, given the size of some of those smaller institutions. I do not think that is a regulatory issue, although on the credit union side it is partly a regulatory issue, because some of our rules may be impeding their ability to club together and create these things called credit union service organisations. We are going to be out within the next month or so with something to help on that front. I wonder whether Ms Ngwenya might want to come in. Mr Jenkins has a conflict in this area, but, on the other hand, he is very well apprised.

Before we move on, on that, we have mutuals in front of us next week. The Government have set a target for doubling the mutual sector. Is that what is driving your behaviour on this, or is it something you were thinking about anyway?

It is an additional impetus. The removal of the source book is part of that picture. We are also going to produce some guidance on something called part 8, which is the mechanism used in the courts for mutual insurers to merge or take over one another. That is certainly contributing to it, and we are going to do a further report on credit unions. We have not given a particular timeline for that, but it is in that context.

Can I leap in with two quick points? The first is that, even before the Government’s focus on doubling the size, we were particularly focused on the sector, in part because organisations such as credit unions serve customers who cannot access financial services in other ways, so they are really important. They provide a really important service. We have worked very closely with the trade associations. We have talked about the strong and simple regime for small, domestically focused lenders. That was developed through a lot of discussions with the Building Societies Association. It was a key stakeholder as we developed that. You will have seen statements from it welcoming that regime, because we are deliberately trying to find ways to make it easier for those firms to do business, expand and grow. Our scale-up unit, which Mr Woods has already mentioned, is another way that we will help them.

The mutual sector is one that we are incredibly focused on, seeing it as being pertinent to the UK financial sector. It is 31%, for example, of the total mortgage market. There are two ways in which the PRA is supporting those efforts.[1] One is collaborating with the FCA’s initiative around the mutual societies development unit. That is bringing together think-tanks, academics, regulators and policymakers, to address the challenges of the sector. The second way is another collaboration with the FCA on the scale-up units that are helping fast-growing mutuals to scale.

Could I turn to the cash deposit protection limit increase to £120,000? That was, I think, higher than some anticipated—all the proposals were initially for £110,000—but broadly represents nine years of indexation. The obvious question is that it is now different from the £85,000 limit, at a time when the Government, very close to the time this was announced, have also changed the amount of cash in ISAs. Is there not a risk that somehow there are mixed messages from the collective authorities here on how desirable it should be to hold things in cash?

I can see why the question arises, but it makes sense in the following way. The limit that we have is for money. It is for deposits, which is the main form of money that we all have. Confidence and trust in money is an absolutely vital underpinning of making our economy work. The view and the response that we have was to ask the question, “Do we want people to have less protection in real terms than they had before?” We thought that the answer to that question was clearly no, so we uprated it, just as you said, by inflation from 2017 through to today. You are right: we consulted on £110,000. It was pointed out to us that, depending on when you started the indexation, it could take you to £117,000. We thought, “Fine, we will round it up to £120,000”. That was what we were looking at. The FCA has a different question on its side, which is around investment. Investment is different and there are different questions around how much caveat emptor we want. How much risk do we want in that part of the system? Again, that will be extremely familiar to you from your previous role. It is true that the FCA had in 2019, if I recall correctly, moved it up from £50,000 to £85,000. At that point you had two numbers in the same place, but it was not true before that point. We did not feel that we should anchor to that on the money side. The FCA looked around the wider public policy debate, just as you said, and said, “It is not obvious that we should be moving up in the same way”. That was all discussed and co-ordinated. On the Government side, again, there is a different motivation. How you want to use fiscal incentives to make people put their money in different places is one question. How confident you want people to feel about their money in the bank is another. I can see that it is perhaps a bit confusing, but it is rational for those three decisions to be different.

You, I, to a lesser extent, and all of us on the Committee are quite steeped in this. The public will see a significant increase in the level of absolute comfort that they can have in their cash reserves and a significantly lower total in their investments, which bear some risk. Has any analysis been done of how behaviours are affected by those different nominal but arguably justifiable different numbers?

You are right. You have several things here moving at the same time in slightly different ways. I do not think any of us know what the ultimate result of that will be. The motivation for the move that we made is clear, quite straightforward and quite solid. In the context of Government work looking at different ISA treatments, we provide advice to the Government—it is just advice—on whether different structures could cause any prudential issues. You can imagine that question might arise. Some parts of the sector—we were just talking about building societies, which are an example—have a lot of that money. We are not concerned about what the Government have done there. Those changes also tend to be about speed. If you make a very big change at very high speed, you could possibly create a dislocation in the bank funding markets, but nothing that the Government have done in any way approaches that problem.

Just as an aside, is there some concern over the treatment of what money is, what a money market fund is, and so on? Does that not leave meaningful ambiguity, which is unhelpful overall to the market?

There is an issue, which is upon us now, about the tokenisation of assets and how that is going to work in the context of all these things. We have been very clear that, if banks want to issue stablecoins, not tokenised deposits but stablecoins outside the deposit regime, we do not want there to be any confusion between a stablecoin issued by a bank and a deposit that someone has with the bank. The hardest line for us to take on that would just be to say that we do not want banks doing stablecoins at all. We think that would be a mistake, and it would be contrary to our secondary objective. Instead, if they do such things, we have asked them to do them under separate branding and from a separate legal entity in order to reduce that cost. That is a bit of a compromise, but it seemed to us a good resting place for now.

You have been in this role for nine and a half years. You would rest your professional reputation on the integrity of the system post crisis. To a person who is not close to all of this, why do we need such a significant protection limit if all of our banks are so well regulated and everything is in a sound state?

The reason for that, first of all—this may strike you as a very bad answer—is that it is incredibly hard to communicate in any kind of intelligible way what we are doing at the back end of banks in terms of the capital ratio and all those things.

I find it difficult to understand.

I am sure we could do better, but all major jurisdictions around the world, at least the capitalist jurisdictions, have decided that it is better to have a protection limit, which people can be told. It is very simple and people can stick with it. There is quite good recall on those limits from the FSCS. That is one reason. The other reason is, of course, that all our protections are calibrated to a certain degree. We do not try to protect the banking system against any kind of bust. You were talking about resolution with colleagues yesterday. We have a strong regime there. We have gained some confidence about it, as they were talking about in a certain way yesterday. Not all of our banks are in a resolution regime. The smaller ones would not go through resolution. You need to have protection for that.

I have one final question. What sort of modelling do you do about scenarios where a mid-tier bank failed for a reason that you could not foresee from the data that you get? While it is covered by the recapitalisation payment levy, would it have a knock-on effect on other challenger banks and be disruptive to the system as a whole? How do you account for such an apparently unforeseen scenario but one that presumably you must contemplate?

Yes, we do think about that. I will bring in Mr Bailey as well, if I may, particularly on what we have done with the recapitalisation tool and other aspects. One thing that we have been looking at is the higher speed of bank runs. We experienced a super-high-speed run on Silicon Valley Bank. There may have been some idiosyncratic factors, but it is reasonable to posit that, in a social media world, a world where we can all swish money around on our phones very rapidly, money can move more quickly than it did before. We have been thinking very hard about that. We do not want to increase massively the stringency of liquidity regulation in a way that ties up more of the funding that the Bank can provide to the economy in assets, either with us at the central bank or in Government bonds.

Speak fast. The bell is about to go.

We want to get greater confidence that they can monetise their liquid assets at high speed.

Thank you very much. We now need to suspend for the votes. Sitting suspended for Divisions in the House. On resuming—

Welcome back to the Treasury Select Committee on Wednesday 21 January 2026. We are resuming our session on the work of the Prudential Regulation Authority. By happy circumstance, we have just moved on to Dame Harriett Baldwin.

I want to start with Ms Ngwenya because of your extensive experience in insurance in the private sector. You will be very familiar with the claim that the insurance industry was making that, if Solvency II were tweaked into Solvency UK, there would be an additional £100 billion of investable assets into the UK economy. I am asking you because I know Mr Woods will say it is not the PRA’s job to monitor whether that has happened. I believe you will probably be speaking to a lot of insurance companies. Can you tell us how they are reacting to the new regime?

I do not know the exact numbers. I do know that the ABI has put out a recent report on this, which we can find for you afterwards. There has been some movement, not as much as we might have expected to see, but these things do take time to develop. It is also about matching insurers’ risk appetites to the available projects for investment in the market. I would like us to see more done, but that is going to be a collaboration between the industry, the ABI and us.

In your external role, what are you challenging the PRA on here? Are you happy with the announcements that have happened for the matching adjustment investment accelerator scheme? Reading it as a layperson, it looks quite complicated, but that is the nature of the industry, I guess.

I am happy that we have introduced a means for the industry to access matching adjustments quicker. This is really an early‑stage tool. We have seen two applications so far, and both have been granted. This is really about providing a way for access to happen quicker rather than extending the scope of the matching adjustment regime. So far, so good.

Are you happy that the limits are appropriate for the industry, the 5% and the £2 billion?

Yes, the limits are there to balance the need for accelerated investment against the prudential risks that we are trying to manage. We believe that the limits allow access for all of the industry to be able to participate. For those larger insurers that already have matching adjustment permissions, should they find those limits constraining, they can always apply for regularisation of those investments within their matching adjustment permissions.

What about the original changes in terms of the regime with the matching adjustment including more productive assets? Are you hearing from the industry that they are happy with the productive assets that have been defined, or would they like a wider scope? What are you hearing?

We have not heard that they are unhappy so far, but my colleagues Mr Woods and Mr Bailey would be able to speak more to conversations they have been having directly.

You have not heard anything directly. Mr Bailey, you have described and defined the asset qualities in these changes. Are you comfortable that the industry is happy with the scope of those productive assets that can now be included in the matching adjustment?

I will say a couple of things. First, the dialogue with the insurers has really moved on. It is a step change over the last couple of years. We have a really constructive relationship. I was talking to the ABI only yesterday on some of their analysis on cost of regulation and the impact of some of our changes. In terms of the specific changes to the matching adjustment and the matching adjustment investment accelerator, they have generally been welcomed by industry. As we have talked about previously, there are always some firms that would like us to do more and go further, but these are quite significant changes and we need some time to see how they bed in. If evidence suggests that we need to think about other things, we will do that. Alongside the Solvency UK changes, though, there are a lot of other things going on in the insurance industry. We are working on a captives regime with Treasury and we have also made some quite significant changes on insurance special purpose vehicles, all of which is aimed at evolving the way that insurers, life insurers in particular, can manage risk and grow their business.

Mr Jenkins, I imagine that the people who bend your ear tend to be the fintechs, start-ups and challenger banks. I wonder what sort of challenges you are hearing from them. It is disturbing when we read in the press about Wise deciding to move. Some 50% of fintechs are rumoured to be thinking about relocating from the UK. What are you feeling about international competitiveness from what you are hearing? What are you challenging the PRA on?

Without referring to any specific organisation, it is fair to say that decisions that people make about where they will list are different from decisions they make about where they operate and do business. The listing issue is linked to the breadth and depth of the capital markets, particularly in the US, for technology companies. If you are evaluating those things, that is going to be important to you because you will want to be able to raise capital. It is worth noting that none of our fintechs that have come up in the last 10 or 15 years have yet listed. They are still evaluating if and when to go down that route.

Do you hear from challenger banks that there are things that the PRA ought to be doing differently? It is good to hear that senior managers regime permissions are coming through faster. What other challenges do you get from industry that you are taking into your role at the PRA?

Generally speaking, on our side of the fence, I would not say the fintech industry is happy, but we are in a sort of equilibrium with the industry. Some of the changes that Mr Bailey referred to, in terms of where some of the cliff edges are, are important. We have to be alive to those things as these organisations scale and get bigger, but it is possibly more on the financial conduct side that you would see some of these.

Are you happy with how quickly the PRA is approving custom internal ratings-based models and things like that? Do you get any feedback on that?

That has been a source of contention with the industry, not just for the newer organisations. In reality, these internal models are incredibly important both for the firms and us. You are basically saying, “We can form a better view of the risk in our business through the datasets that we have and the statistical analysis that we can perform upon them. As a result of that analysis, we can then allocate different levels of capital to the risk on the balance sheet”. Usually, that level of capital is lower. If the PRA is to authorise that, we need to be very content that the datasets that support the argument and the analysis of statistical modelling has been done appropriately. While there are areas where we can improve on the margin, the rigour with which we have addressed the models is appropriate.

You do get feedback, I am hearing, then. It is a very slow process. It can take a long time.

It is fair to say that it is an iterative process. What will happen is a firm will submit a model; we will review it; we will go back with questions, clarifications and points that need to be addressed; and they will come back to us. The cycle time is not all at our discretion inside the PRA. We do everything we can to make sure it is as efficient as possible. Mr Woods and the team continue to look for opportunities to shrink those cycle times, but it has to be done properly because it is so important in the setting of capital levels, particularly in mortgages.

I will make two points, particularly on internal models. First, we announced last year some changes to our process and timelines. We made a commitment to approve models, where we get a complete application, within six months. For the mid-tier challenger banks that are aspiring to get internal model approvals for the first time, we have committed to having a dedicated point of contact at the PRA who will help them work through the process from start to finish in a timeline that is proportionate. We have set a limit of 18 months on that. That is the first point. We have put in place some more structured processes, which are already in place and under way. Secondly, on some of the more complex areas of the internal modelling process, particularly around residential mortgages, we opened a discussion last year with industry about potential changes from the policy side specifically designed for the mid-tier challenger banks. They are newer banks that have less data and statistical history, which makes it more complex. We have put out there some potential changes we could consider. We are in dialogue with industry around whether they would make the process easier for those firms.

There are no specific commitments in terms of reduced turnaround or timelines?

As I said, we have said that we will do a complete application within six months. For a new firm that comes to us, from start to finish it will be 18 months. Those are the targets that we are working to. As Mr Jenkins said, this is a complex process and there needs to be iteration.

I have two quick questions, if I may, for Mr Woods. As you look back on your career, we have heard that the thresholds have been raised a few times. It seems logical to me that they should grow in line with the economy or something like that. How big is a systemically important bank today?

If you want just one measure, once you are north of about £50 billion in assets you are clearly systemic. We have thresholds on either side of that. Some of them kick in a bit later, some a bit earlier. If you wanted one number, take £50 billion.

Is that something that you keep under continual review?

Yes, we do. We have two separate issues. One is that we have different thresholds for different things. We have talked to industry about that. Would it be better if we collapsed everything to a single number such as £50 billion, £70 billion or whatever it was? The feedback that we got was, “That would create one giant ledge. We would probably rather you kept some different thresholds”. We have had some complaints—I think they are well founded—from the industry. They have asked for more clarity about the way these thresholds are going to be updated and more consistency. We are looking at the idea of a kind of automatic indexation tool. We have not yet brought it to the Committee. Mr Jenkins and Ms Ngwenya have not had a chance to look at this yet. We wonder whether we could bring that in. That would make the whole thing much easier.

I have one final question. It is about working from home. The FCA has been asking people to move from 40% of time in the office to a different number. Is there a policy on this at the PRA? Is it changing?

Yes, there is a policy. We ask people to be in half the time, with a minimum requirement of 40% of the time. Like many other organisations, we are looking at that at the moment. We have not made any decisions yet. The mindset of the leadership team on the PRA side, and the Bank generally, is to think that some flexibility in our offering to recruits is quite important, not least on the financial services-facing side, where typically our pay will be lower. We believe quite strongly that having enough time with people together in the office is a very important part of what makes the organisation work properly, so we do not want to have too little of that.

I want to ask a couple of questions about loan-to-income flow limits. As you will know, you have recently increased the threshold for mortgage lenders from £100 million to £150 million. Is that enough? Does that really support growth and competitiveness in the marketplace? It only increases the number of lenders by about 10. Can you justify that as the right number?

We made two separate changes on that limit. The first one was aimed at the smaller end of the market, particularly those small lenders. That was really about proportionality and removing a burden for those small firms. As you say, it affected about 10 firms. Collectively, the firms that benefit from the exemption are only 2.2% of the mortgage market. It is about proportionality for those firms. The FPC, though, also changed its recommendation on the overall limit to the PRA. Previously, the way it was implemented in the PRA is that we had set a limit of 15% of high loan-to-income lending for each lender individually. That meant the aggregate was always going to be below the limit because every firm wants to have a buffer before they hit the hard limit. In the middle of last year, the FPC asked us to look again at that and relax the way we were doing it so that, in aggregate, the lending gets closer to 15%. We have allowed individual lenders to go above the 15% limit, provided that, in aggregate, the system as a whole, from a flow perspective, remains about 15%. We have had good take-up on that. Nine firms have taken up on the waivers necessary to do that. We are seeing a pick-up in lending as a result.

I need to adjourn. Thank you to our witnesses. We will end the meeting now.   [1] The Bank of England later emphasized the mutuals sector accounts for 31% of the total mortgage market.