The Financial Policy Committee of the Bank of England recently issued recommendations for enhanced leverage ratio requirements to apply to UK global systematically important banks, and other major domestic UK banks and building societies. HM Treasury has accepted these recommendations and will exercise its powers to enable the Financial Policy Committee to direct stricter leverage requirements for such UK institutions.

Introduction -

The leverage ratio was introduced as an essential pillar of the Basel III Accord. It backstops the risk-weighted capital requirements for credit exposures and provides a capital floor that mitigates the variations in the way different banks risk-weight their exposures. A minimum leverage ratio of 3%, which is now the internationally agreed standard, has been the subject of individual national add-ons, particularly for global systemically important banks (“G-SIBs”). For example, in the US G-SIBs will be subject to a supplementary ratio which means that the overall leverage ratio requirement in the US for those institutions is to be 5%.