More Leverage for the Unleveraged—Basel Committee Proposes Specific Leverage Capital Framework for Banking Organizations

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On June 26, the Basel Committee on Banking Supervision (“Basel Committee”) published a Consultative Document that proposes specific leverage capital requirements, and related disclosure requirements (the “Proposal”), that would more fully implement the leverage capital provision of the 2010-2011 revised regulatory capital accord (“Basel III”) adopted in the wake of the financial crisis. The Proposal specifies the elements of the “Exposure Measure” for calculating leverage capital requirements. Comments on the Proposal are due by September 20, 2013.

A Quick Refresher on Basel III Leverage Capital -

Basel III provides for a new non-risk based leverage capital ratio that, when fully effective, will supplement the Basel III risk-based capital requirements. In general, the leverage ratio is intended to reinforce a banking organization’s overall regulatory capital by creating a non-risk-based regulatory capital backstop. Implementation of the leverage ratio has begun with bank reporting to supervisors of the leverage ratio and its components, a process that was supposed to have begun in January 2013, although implementation dates have slipped in various jurisdictions. Nevertheless, the Basel Committee expects full substantive implementation of the leverage ratio by January 1, 2018.

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Topics:  Banking Crisis, Basel Committee, Basel III, Capital Requirements, Disclosure Requirements, EU, Leveraged Lending, Risk Management

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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