The Basel 3.1 output floor stops a firm’s modelled risk-weighted assets falling below a set share of what the standardised approaches would produce. In the UK it starts at 60% on 1 January 2027 and rises every 1 January until it reaches 72.5% on 1 January 2030.
It only binds where internal models produce lower numbers than the standardised approaches, so IRB and internal model firms feel it and purely standardised firms do not.
What is the output floor and how is it calculated?
The floor sets a firm’s total risk exposure amount (TREA) as the higher of its un-floored figure and a percentage of its fully standardised figure. The rule is Article 92(2A) of the Required Level of Own Funds (CRR) Part of the PRA Rulebook, made final in PS1/26 on 20 January 2026.
The formula reads TREA = max {U-TREA; x × S-TREA + OF-ADJ}. U-TREA is the risk-weighted asset figure using the approaches the firm has permission to use, IRB included. S-TREA recalculates the same balance sheet using only standardised approaches. OF-ADJ corrects for the different treatment of accounting provisions under the standardised and IRB approaches, so the comparison is like for like. The factor x is 72.5% once fully phased in.
TREA is the denominator for every risk-based ratio. The minimum CET1 ratio is 4.5% of TREA, Tier 1 is 6% and total capital 8%, and the capital conservation buffer is 2.5% of TREA. Any floor uplift therefore raises every requirement set as a percentage of TREA at once. For the wider package, see what Basel 3.1 changes for UK banks.
S-TREA is a second full calculation of the balance sheet on the new standardised rules. Firms that treat it as a reporting afterthought cannot say, month to month, how close they are to the floor.
How does the floor phase in between 2027 and 2030?
The transitional factor steps up on 1 January of each year: 60% for 2027, 65% for 2028, 70% for 2029 and 72.5% from 1 January 2030. The transitional factors sit in Article 92(5).
UK output floor factor by year, 2027 to 2030
- Floor starts at 60% of S-TREA under Article 92(5)(a), applying to 31 December 2027.
- Factor rises to 65% under Article 92(5)(b), a step of five points.
- Factor rises to 70% under Article 92(5)(c). A firm with U-TREA at 68% of S-TREA becomes bound.
- Fully phased in at 72.5% under Article 92(2A), a final step of two and a half points.
| Period | Factor x applied to S-TREA | Rule reference |
|---|---|---|
| 1 January 2027 to 31 December 2027 | 60% | Article 92(5)(a) |
| 1 January 2028 to 31 December 2028 | 65% | Article 92(5)(b) |
| 1 January 2029 to 31 December 2029 | 70% | Article 92(5)(c) |
| From 1 January 2030 | 72.5% | Article 92(2A) |
When the PRA delayed Basel 3.1 to 1 January 2027, it shortened the transition so that full implementation stayed at 1 January 2030. Every dated PRA change to 2030 is in our regulatory tracker.
The steps are uneven: five points, five points, then two and a half. Take a firm whose U-TREA is 68% of S-TREA and ignore OF-ADJ for simplicity. It is unconstrained in 2027 and 2028 and bound from 1 January 2029. A plan that checks only 2027 misses it.
Where does the floor apply in a group?
The floor applies at specified levels, not at every entity. Article 92(2A)(a) applies it:
- on an individual basis, to a stand-alone institution in the UK and to a ring-fenced body that is not in a sub-consolidation group;
- on a sub-consolidated basis, to a ring-fenced body in a sub-consolidation group;
- on a consolidated basis, to a CRR consolidation entity that is not an international subsidiary.
Everywhere else, including the consolidated level of an international subsidiary, the firm uses un-floored TREA.
The international subsidiary approach lets certain UK subsidiaries of overseas groups leave the floor to be applied at group level abroad. It needs PRA permission and is not available to ring-fenced bodies. One condition is that the home jurisdiction has “made specific and public proposals to implement the output floor” (Required Level of Own Funds Part, rule 5.1). Groups that assume the permission before they hold it are planning on capital they may not be allowed to count.
Which firms does the output floor bite?
The floor bites on firms using IRB for credit risk or internal models for market risk. For a firm on standardised approaches alone, U-TREA and S-TREA are the same calculation, and 72.5% of a number cannot exceed it, so the floor has nothing to bite on.
A firm that applies IRB cannot be an SDDT, and the SDDT capital regime, in force from 1 January 2027, builds Pillar 1 on the Basel 3.1 standardised approaches. Test your firm in our SDDT eligibility checker.
IRB firms also face changes that move U-TREA before the floor is tested: input floors for PD, LGD and EAD, and the loss of advanced IRB for large corporates (annual revenue over £440 million) and financial corporates. The PRA estimated in PS9/24 that Tier 1 capital requirements for major UK banks “are likely to increase by less than 1% by 1 January 2030”. Individual firms can land well away from that aggregate.
Firms get caught out when they calculated the floor once, for an impact study, and stopped. Model changes move U-TREA; the book moves S-TREA. The gap belongs in monthly capital MI, which is where our Basel 3.1 advisory work starts. IRB banks that need to strengthen the team behind those numbers can see our searches for a head of model risk and a head of credit risk.
How does the output floor interact with Pillar 2A?
The PRA has said it will not count capital for the same risks in both Pillar 1 and Pillar 2A. It will rebase day 1 Pillar 2 and variable Pillar 2A during the output floor transitional period so that floor-driven RWA increases do not raise Pillar 2A where risk is unchanged (PS9/24 paras 6.2 and 6.11).
The mechanism is an off-cycle review of firm-specific Pillar 2, which the PRA said would not need a full ICAAP (PS9/24 para 6.6), fed by a data collection due by 31 March 2026. Separately, PS15/26 removes the Pillar 2A benchmarking methodology, IRB benchmarks included, from 1 January 2027.
The error we see in projections is holding Pillar 2A at today’s percentage of RWAs while applying the floor to those same RWAs. That counts the uplift twice. The capital plan should use the rebased figure the firm has been given or, until it has one, state its assumption plainly.
What should the board see in the ICAAP capital plan?
The board should see, for each year from 2027 to 2030 and at each level where the floor applies, U-TREA against floored TREA and the capital ratios that result. Where the floor applies, the ICAAP from 1 January 2027 should rest on floored numbers.
- U-TREA, S-TREA and floored TREA for every plan year, each at that year’s transitional factor.
- The year the floor first binds, and the headroom in each year before it does.
- CET1, Tier 1 and total capital ratios on floored TREA against Pillar 1, Pillar 2A and buffers.
- The Pillar 2A assumption after rebasing, written down.
- The stressed projection run on floored TREA, not the un-floored figure.
- The management actions available if the floor binds earlier than planned.
Boards tend to ask one question: in which year does the floor bite, and by how much? If the pack cannot answer that in a line, it needs rework. Our ICAAP reviews and the RisKIT capital models are built around that view. Our Basel 3.1 course trains the teams who run the numbers, and our head of prudential risk search finds the person who owns them.
What mistakes do firms make with the output floor?
- Projecting at 60% only. That factor covers 2027 alone; a plan run at 60% overstates headroom in every later year.
- Forgetting the floor tightens each 1 January. A balance sheet that clears 60% on 31 December 2027 faces 65% the next morning.
- Modelling only the consolidated position when a ring-fenced sub-group is where the floor applies.
- Assuming the international subsidiary approach before the PRA has granted it.
- Building S-TREA on the old standardised rules rather than the Basel 3.1 ones.
Questions readers ask
Does the output floor affect SDDTs?
In practice, no. A firm applying IRB cannot meet the SDDT criteria, and the SDDT capital regime uses the Basel 3.1 standardised approaches. With no modelled figure to compare, the floor has nothing to bite on.
When does the output floor reach 72.5%?
On 1 January 2030. The transition runs from 1 January 2027 to 31 December 2029, at 60%, 65% and 70% in turn.
Does the floor cover market risk models?
Yes. S-TREA uses only standardised approaches, so modelled market risk is compared with its standardised equivalent. FRTB-IMA applies from 1 January 2028; existing IMA permissions continue through 2027.
Will Pillar 2A change as the floor rises?
The PRA will rebase Pillar 2A during the transitional period so floor-driven RWA increases do not raise it where risk has not changed. Each firm’s outcome comes through the PRA’s off-cycle review of Pillar 2. Until that lands, state the assumption in the ICAAP.
Sources: PRA, PS1/26 Implementation of Basel 3.1: Final rules (20 January 2026); PRA, PS1/26 Appendix 1, PRA Rulebook: CRR Firms: (CRR) Instrument 2026 (20 January 2026); PRA, PS9/24 Implementation of the Basel 3.1 standards near-final part 2 (12 September 2024); PRA, news release on the delay to Basel 3.1 (17 January 2025); PRA, Basel 3.1 data collection exercise (updated 29 January 2026); PRA, PS15/26 Pillar 2A review Phase 1 (28 May 2026); PRA, PS4/26 The strong and simple framework final policy statement (20 January 2026); PRA Rulebook, SDDT Regime, General Application (viewed 29 September 2026); PRA Rulebook, Capital Buffers (viewed 29 September 2026).
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