April 7, 2016

Basel Committee Proposes Revisions to Leverage Ratio Framework that Include New Method for Assessing Derivatives Risk

The Basel Committee on Banking Supervision (the "Committee") solicited comments on proposed revisions to the Basel III leverage ratio framework.

Specifically, the Committee's proposed revisions to the framework addressed the following:

  • Treatment of Derivative Exposures. The proposal (i) modifies the current method for measuring counterparty credit risk exposures, (ii) allows the Committee to continue its assessment of the impact of the Basel III leverage ratio on client clearing business models, (iii) suggests an assessment of the eligible cash variation margin to apply when a currency of settlement is but one of many currencies in a derivatives transaction, and (iv) revises the specific treatment of written credit derivatives.

  • Regular-Way Purchases and Sales of Financial Assets. The proposal considers two possible options for the measuring of regular-way purchases and sales of financial assets.

  • Additional Requirements for Global Systemically Important Banks ("G-SIBs"). The proposal suggests raising the Basel III leverage ratio requirement for G-SIBs.

The Committee noted that it will conduct an additional quantitative impact study exercise on Basel III to assess whether the proposed revisions are consistent within the capital framework, and will then evaluate appropriate implementation arrangements for the final framework.

Comments on the proposed revisions to the Basel III leverage ratio framework must be submitted by July 6, 2016.

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