Basel Committee publishes final definition of leverage ratio

Date 13/01/2014

The leverage ratio is similar to the traditional capital adequacy requirement in that it aims to ensure that the banks have sufficient capital to be able to cover losses. The difference is that it is not based on risk weights. Instead, the leverage ratio sets a ceiling for the banks' exposures based on the size of the respective bank's capital and its unweighted assets. As such, it limits the extent to which banks can expand their balance sheets, even for banks which operations are considered relatively risk-free.

According to the Basel Committee, the leverage ratio will be introduced as a disclosure requirement starting 1 January 2015. The new disclosure requirements for the leverage ratio is a first step to migrating to a Pillar 1-measure (minimum capital requirement) on 1 January 2018

At the meeting, the GHOS also endorsed the Basel Committee's proposed revisions to the Basel framework's Net Stable Funding Ratio, NSFR. This is an important step towards completing the work on the NSFR in the coming year. The GHOS also endorsed a number of other proposals related to the short-term Liquidity Coverage Ratio, LCR. This included establishing the proposed minimum requirements for public disclosure of LCRs.

Further information on the decisions and press releases from the meeting can be found on the Bank for International Settlements' (BIS) website.