As the Basel Committee works toward finalizing Basel III, the Group of Governors and Heads of Supervision (GHOS), the Committee’s oversight body, has endorsed proposals for amending the leverage ratio, net stable funding ratio (NSFR) and liquidity coverage ratio (LCR).
For the leverage ratio, the GHOS endorsed the Committee’s recently issued full text of the framework and disclosure requirements. In this version, the minimum leverage ratio is still set at holding 3% of Tier 1 capital, but the Committee will review data semiannually to determine if “3% is appropriate over a full credit cycle and for different types of business models,” the group said in a statement.
Furthermore, the requirements now allow for netting for derivatives and securities finance transactions, subject to certain provisions, such as for securities finance transactions all transactions have to be marked to market daily. In addition, banks can exclude counting client-cleared derivatives transactions with qualifying central counterparties (QCCPs) when the clearing member does not guarantee the performance of a QCCP to its clients.
The Committee also amended rules for counting off-balance sheet items, whereas “[i]nstead of using a uniform 100% credit conversion factor (CCF), which converts an off-balance sheet exposure to an on-balance sheet equivalent, the leverage ratio will use the same CCFs that are used in the Basel framework’s Standardised Approach for credit risk under the risk-based requirements, subject to a floor of 10%,” the group said.
For the NSFR, the revisions are still in development but focus on reducing cliff effects within the measurement of funding stability, improving the alignment of the NSFR with the LCR and placing more emphasis on short-term, potential volatile funding sources when determining the NSFR. The Committee is accepting comments on these proposals until April 11, 2014.
For the liquidity coverage ratio, the Committee finalized requirements for disclosure, which will begin to go into effect on January 1, 2015 in a phased approach. The Committee also eased requirements on allowing central banks to provide liquidity. Previously, only jurisdictions with insufficient high quality liquid assets (HQLA) to meet the needs of the banking system could use Committed Liquidity Facilities (CLFs) provided by central banks. Now, a restricted version of a CLF may be used by all jurisdictions, which is a choice that can be made by the individual jurisdiction, but they should remain lenders of last resort. If HQLA are in short supply, these restrictions may be further relaxed.
Basel Committee Eases Rules on Leverage and Liquidity
As the Basel Committee works toward finalizing Basel III, the Group of Governors and Heads of Supervision (GHOS), the Committee’s oversight body, has endorsed proposals for amending the leverage ratio, net stable funding ratio (NSFR) and liquidity coverage ratio (LCR).