Revisions proposed to the Basel III leverage ratio framework and answers to frequently asked questions issued by the Basel Committee

6 April 2016

Press release

The Basel Committee on Banking Supervision today released a consultative document entitled Revisions to the Basel III leverage ratio framework, and responses to a third set of frequently asked questions (FAQs).

The Basel III framework introduced a simple, transparent, non-risk-based leverage ratio to act as a supplementary measure to the risk-based capital ratio. This consultative document proposes a set of changes to the standard released in January 2014. The proposed changes to the framework are an important element of the regulatory reform programme that the Basel Committee has committed to finalise by end-2016.

The proposals in the consultative document have been informed by the parallel run period since 2013, by feedback from market participants and stakeholders, and by the frequently asked questions process since the release of the standard in 2014.

The proposed revisions cover the following issues:

  • to measure derivative exposures, the Committee is proposing to use a modified version of the standardised approach for measuring counterparty credit risk exposures (SA-CCR) instead of the Current Exposure Method (CEM);

  • to ensure consistency across accounting standards, two options are proposed for the treatment of regular-way purchases and sales of financial assets;

  • clarification of the treatment of provisions and prudential valuation adjustments for less liquid positions, so as to avoid double-counting; and

  • alignment of the credit conversion factors for off-balance sheet items with those proposed for the standardised approach to credit risk under the risk-based framework.

The Committee is also seeking comment on an additional leverage ratio requirement applicable to global systemically important banks.

The final design and calibration of the proposals will be informed by a forthcoming comprehensive quantitative impact study.

To promote consistent global implementation of the Basel standards, the Committee periodically reviews frequently asked questions (FAQs) and publishes answers along with any technical elaboration of the standards text and interpretative guidance that may be necessary. The Committee today also published responses to a third set of FAQs that relate to the Basel III leverage ratio framework.

The Committee welcomes comments from the public on all aspects of the proposals described in this document here by Wednesday 6 July 2016. All comments will be published on the Bank for International Settlements website unless a respondent specifically requests confidential treatment.