The rule in plain words
Interest, Lease and Dividend Component (ILDC) compares the difference between Interest Income and Interest expense with 2.25% of the sum of Interest earning assets and Dividend Income and returns the minimum of the two parameters
In Operational risk: part 4 - business indicator and subcomponents (OPR) (OF16.00.01.04): "Interest, Lease and Dividend Component (ILDC)" in column "Component value" (row 0040, column 0050) must equal the smaller of "Absolute value of interest income minus interest expense" in column "Average amount" (row 0050, column 0040) and 0.0225 multiplied by "Interest earning assets" in column "Average amount" (row 0120, column 0040) plus "Dividend income" in column "Average amount" (row 0210, column 0040).
The headline gives only the template and the kind of check, because the rule is too long to say in a headline. The plain words above say all of it.
What to do if your return fails it
- 01Open the tables below and find the cells the rule reads.
- 02Add up the parts in your return and compare the result with the total.
- 03If they differ, a part is missing, a value sits in the wrong cell, or the total is out of date.
- 04The Bank of England allows a small rounding difference, worked out from the decimals each value is reported with.
- 05It runs only when your filing indicators mark OF16.00.01.04 as reported.
- 06This is a warning. It does not stop the return on its own, but your supervisor may ask you to explain it.
The cells it reads
Operational risk: part 4 - business indicator and subcomponents (OPR) (OF16.00.01.04)
Rows
- R0040Interest, Lease and Dividend Component (ILDC)
- R0050Absolute value of interest income minus interest expense
- R0120Interest earning assets
- R0210Dividend income
Columns
- C0040Average amount
- C0050Component value
Operational risk: part 4 - business indicator and subcomponents (OPR) (SC16.00.01.04)
Rows
- R0040Interest, Lease and Dividend Component (ILDC)
- R0050Absolute value of interest income minus interest expense
- R0120Interest earning assets
- R0210Dividend income
Columns
- C0040Average amount
- C0050Component value
Which returns it applies to
Line4 Check runs it on the own funds (PRA001) and own funds for SDDTs (PRA116) returns on Bank of England banking taxonomy 4.1.1. The Bank of England applies it to own funds for SDDTs (PRA116) and own funds (PRA001) returns, as a warning.
The Bank’s own words and formula
The first paragraph of the plain words above is the Bank of England’s own, word for word, from its list of validations. The second spells out its formula, with each cell named from its templates.
Show the formulaShowHide
The Bank of England's formula. Cells are written as {t: table, r: row, c: column}.
{t: OF16.00.01.04, r: 0040, c: 0050} = min({t: OF16.00.01.04, r: 0050, c: 0040}, 0.0225 * {t: OF16.00.01.04, r: 0120, c: 0040}) + {t: OF16.00.01.04, r: 0210, c: 0040}Other rules on Operational risk: part 4 - business indicator and subcomponents (OPR) (OF16.00.01.04)
- Operational risk: part 4 - business indicator and subcomponents (OPR): a total must equal the sum of its parts (boe_b0479)
- This represents Total Other Operating Income (R0250), excluding Operating Leases other than investment property (R0270) (boe_b0476)
- Total Interest expense is the sum of Interest Expense and Expense from Operating Leases (other than investment property) for the period (boe_b0472)
- This is the Total value of Interest Earning Assets calculated as the sum of each interest earning asset for the period (boe_b0468)
- This is the Total Interest income calculated as the sum of Interest income and Income from Operating Leases (other than investment property) (boe_b0465)
- This is the absolute value of the difference between interest income and interest expense (boe_b0462)
- Operational risk: part 4 - business indicator and subcomponents (OPR): a total must equal the sum of its parts (boe_b0457)Blocking
- Operational risk: part 4 - business indicator and subcomponents (OPR): values must agree (boe_b0794)
Every PRA banking rule on OF16.00.01.04
Checks like this one, run at the point of submission, are the first step to real-time supervision. Line4 builds SupTech software for financial regulators that runs checks like these as each return arrives.