WASHINGTON — The Basel Committee on Banking Supervision took a tentative step toward considering a supplementary ratio for the largest and most internationally active banks when it laid out its suggested revisions to its international leverage ratio framework Wednesday.
"The Committee believes that one way to maintain the relative roles of the risk-based ratio and the leverage ratio in the regulatory capital framework would be to introduce a higher Basel III leverage ratio requirement for G-SIBs," the proposal said, referring to global systemically important banks. "An additional leverage ratio requirement for G-SIBs could be based on the same Tier 1 definition of capital by which the Basel III leverage ratio minimum is measured."
But the committee's statement stopped short of a full-throated endorsement, saying that any "final design and calibration of the proposals will be informed by a forthcoming comprehensive quantitative impact study." The committee said it would accept comment on the proposals through July 6.
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An international regulatory body said this week that they are looking at setting new, enhanced leverage ratio requirements for the largest global banks, a move that echoes the higher standards in the U.S.' supplemental leverage ratio and demonstrates why going beyond international accords can influence the rest of the world.
January 14 -
The Basel Committee on Banking Supervision released the text of its anticipated revised market risk framework on Thursday, one of the last and most important remaining unfinished aspects of the 2010 Basel III accords.
January 14 -
U.S regulators' knack for going beyond international standards is prompting industry worries over the cumulative effect of different jurisdictions' capital regimes.
January 7
If the Basel Committee were to adopt a supplemental leverage ratio for G-SIBs, it would signal that the international community would have moved significantly closer to the Federal Reserve's position, which is mandating heightened regulatory and capital standards for the largest and most globally active banks.
The committee specifically sought comment on whether the application of Tier 1 capital toward a supplemental ratio should be limited; whether such a requirement should be fixed or tethered to the specific G-SIB's loss absorbing capacity "as applicable under the risk-based framework"; and whether the ratio should be applied as a higher minimum capital standard or as an additional "buffer" requirement.
Mario Draghi, president of the European Central Bank and chairman of the Group of Central Bank Governors and Heads of Supervision — the overseeing body of the Basel Committee — said in a Jan. 11 release that the group had agreed to keep the leverage ratio at the previous 3% minimum of Tier 1 capital, but that it "discussed additional requirements for Global Systemically Important Banks."
The Fed, along with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp., adopted a supplementary leverage ratio in September 2014 to "more appropriately [capture] a banking organization's on- and off-balance-sheet exposures," such as credit derivatives, repurchase agreements and lines of credit. That rule, which would apply to U.S. banks or U.S. affiliates of foreign banks with at least $250 billion in consolidated assets or at least $10 billion in total on-balance-sheet foreign exposure — Basel's formal definition of a G-SIB.
The Fed's supplemental leverage ratio raised the Tier 1 capital requirement from 3%, as required by Basel, to 5% for G-SIBs and 6% for their insured subsidiaries.
The Basel framework proposal also laid out other recommended changes to the Basel III leverage ratio standards.
The proposal recommends measuring derivative exposures for the purposes of calculating off-balance-sheet risks with the Standardized Approach for Counterparty Credit Risk, or SA-CCR, rather than the previous Current Exposure Method. In a proposed rule limiting single counterparty credit risk last month, the Fed acknowledged the development of SA-CCR and suggested that it may incorporate that method as it re-evaluates its risk-based capital rules.
Basel also included provisions to clarify prudential valuation for certain illiquid positions, laid out standard approaches for accounting for regular-way financial transactions and steps to align conversion factors of off-balance-sheet items with existing risk-based capital rules.
