UK Finance has responded to the PRA's consultation on asset encumbrance.

We supported the PRA's Pillar 2 focussed approach and welcomed its statement that it would not prescribe a particular methodology for the valuation of encumbered assets, but that this should remain the firm's choice. We suggested that the definition of encumbered assets should be completely aligned with relevant Capital Regulation Requirements and drew attention to the overlying conservative FCA approach to stress testing covered bonds, which may result in their over-collateralisation and an consequent unnecessary increase in encumbered assets.