What next for the Basel III leverage ratio framework?

What next for the Basel III leverage ratio framework?

Following the publication of Basel III’s leverage ratio framework and disclosure requirements, Peter Green, partner at Morrison & Foerster, analyses the likely impact of the guidance and how it fits in with other developments in the area.

Original news

Guidance: Basel III leverage ratio framework and disclosure requirements, LNB News 13/01/2014 76

The full text of Basel III’s leverage ratio framework and disclosure requirements has been issued by the Basel Committee following endorsement on 12 January 2014 by its governing body, the Group of Central Bank Governors and Heads of Supervision. A simple leverage ratio framework is critical and complementary to the risk-based capital framework to help ensure broad and adequate capture of both the on- and off-balance sheet sources of banks’ leverage. This non-risk based ‘backstop’ measure aims to restrict the build-up of excessive leverage in the banking sector.

What is the guidance that the Bank for International Settlements (BIS) has put forward?

The Basel Committee has published a revised framework for the leverage ratio which makes an adjustment to the way the ratio (which forms part of the Basel III accord) is calculated. The basic premise of the proposed leverage ratio is that tier 1 capital should be at least 3% of total exposures, with exposures calculated on a gross (ie without netting in relation to individual transactions).

The adjustments now give greater flexibility for banks to calculate certain exposures, particularly in relation to securities lending and repo transactions on a net basis and to allow the cash variation margin to be deducted from derivatives exposures, in each case subject to certain conditions. Banks have argued since the introduction of the proposed leverage ratio, t

Subscription Form

Related Articles:
Latest Articles:

Already a subscriber? Login
RELX (UK) Limited, trading as LexisNexis, and our LexisNexis Legal & Professional group companies will contact you to confirm your email address. You can manage your communication preferences via our Preference Centre. You can learn more about how we handle your personal data and your rights by reviewing our  Privacy Policy.

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login

About the author: