Leverage ratio lobbyists building pressure on regulators

Upcoming leverage ratio changes have faced scrutiny in recent weeks.
By Paul Walsh
The International Capital Markets Association (ICMA) has become the latest industry body to express concerns over upcoming leverage ratio changes.

In its third quarter report, the firm detailed how consequences from the implications of leverage ratio could be avoided with additional study of more detailed treatments for special asset types including high-quality liquidity assets.

Additionally, it suggested a need to introduce a number of specific refinements including the exemption of central bank reserves from leverage exposure measures.

The main concern for clearing banks is how the Basel III framework treats collateral, in which client segregated margin is treated as part of the total leverage ratio calculation, requiring more capital from banks.

Numerous industry associations have expressed concerns about leverage ratio rules.

The Financial Industry Association (FIA), Global Financial Markets Association (GFMA), International Swaps and Derivatives Association (ISDA) and others, explained the rules could lead to unintended consequences.

The associations agreed the regulations will make client clearing more difficult, and the increasing capital constraints for firms could affect “efficient financing”.

Additionally last week, the Bank of England’s Financial Policy Committee appealed for a review of leverage ratio rules to allow clearing banks to use client collateral as a means to reduce their potential future exposures.