Out-Law / Your Daily Need-To-Know

Basel Committee plans faster work on 'leverage ratio' for global banks

23 Oct 2014, 4:43 pm

Global banking regulators are planning to finalise the framework for the 'leverage ratio', one of the measures of bank capital reporting required under the upcoming Basel III international regulatory regime, sooner than previously planned.

Final agreement on the rule, which refers to the minimum level of capital banks will have to hold as a proportion of their total assets without weighting for risk, is due by 2017, one year before the new rules come into force. However William Coen, secretary general of the Basel Committee, told reporters in London this week that work would not be likely to start on the final rule next year.

"There is an appetite within the committee to start that work sooner rather than later," Coen said, in comments published by Reuters.

The new figure, which is expected to be higher than the interim ratio of 3% banks are working towards as part of their preparations for the new regime, would be consulted on before coming into force and would not be formally enforced until 2018, he said. However, national regulators and investors have previously expected banks to demonstrate compliance with parts of the new regime as soon as they have been finalised.

The Basel II agreement introduces new baseline requirements for capital, leverage and liquidity. It will require banks to increase both the quantity and quality of capital they hold, while accounting for higher levels of risk-weighted assets. Most of the new requirements will come into force by 2019.

Regulators consider the leverage ratio to be less vulnerable to manipulation than traditional measures of the loans and other assets on banks' books as it requires them to state their value without weighting for risk. Banks will be required to disclose their leverage ratios from 2015, before the minimum ratio becomes binding in 2018.

The Bank of England is due to publish its own proposals for a UK leverage ratio at the end of this month. It is expected to propose a figure between 4 and 5%, according to Reuters.

The Basel Committee is due to finalise the third and last phase of the new regulatory regime before the end of the year. The Net Stable Funding Ratio (NSFR) is intended to ensure that banks have access to longer-term funding which is less likely to dry up in a market crisis and is also due to take effect in 2018.