Sunday's decisions were the latest sign of how regulators have
become more willing to accommodate banks as the focus switches to
helping economies recover.
The relief to lenders may, however, be temporary as the regulators
signaled there is still no agreement on the final level of the new
leverage ratio, which measures how much capital a bank must hold
against its loans and other assets.
The ratio was initially set at 3 percent of capital but supervisors
from the United States, Britain and elsewhere are pushing for a
higher proportion, a person familiar with the debate said.
The ratio acts as a backstop to a lender's core risk-weighted
capital requirements. A ratio of 3 percent means a bank must hold
capital equivalent to 3 percent of its total assets.
The rule is part of the Basel III accord endorsed by world leaders
in response to the 2007-09 financial crisis that left taxpayers
rescuing undercapitalized lenders.
The rules have been drafted by the Basel Committee and on Sunday its
oversight body, the Group of Governors and Heads of Supervision (GHOS),
chaired by European Central Bank President Mario Draghi, backed key
changes to the leverage ratio.
"The final calibration, and any further adjustments to the
definition, will be completed by 2017," the GHOS said in a statement
after its meeting in Basel, Switzerland.
As first reported by Reuters last month, when banks tot up their
assets, they can now include derivatives on a net rather than the
much bigger gross basis so they don't have an incentive to ditch
some types of assets, such as loans to companies, to avoid hitting
the ratio's ceiling.
U.S. banks will welcome the change because their accounting rules
have allowed them to net derivatives, while European banks, whose
accounting rules require gross positions, will be able to net and
not be at a disadvantage to U.S. rivals.
The GHOS has endorsed new criteria which all banks must meet if they
are to net derivatives and repurchase agreements for leverage ratio
calculations, irrespective of what accounting standards they follow.
This will also make it easier for investors to compare banks. Banks
must start disclosing their leverage ratio from 2015, and comply
with the Basel minimum ratio from January 2018.
"The revised approach to same-counterparty short-term financing
transactions recognizes the benefit of netting in reducing systemic
risk and is welcome, as is the lower conversion factor for trade
finance transactions which banks provide to oil the wheels of
international trade and economic growth," said Simon Hills, a
director at the British Bankers' Association.
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U.S. and UK regulators have come to favor the leverage ratio as a
main tool for checking on bank risks rather than just a backstop, as
they suspect lenders are gaming the risk weighting system used to
determine core capital buffers.
U.S. banks are being asked to have leverage ratios well above 3
percent and some lawmakers in Britain want a ratio of 4 percent or
The Bank of England's director for financial stability, Andrew
Haldane, has called for a much simpler method for calculating how
much capital banks must hold rather than relying on complex risk
The GHOS said on Sunday that consideration for simpler capital rules
will be a top priority in 2014 and 2015.
Leading banks want to show investors they can meet a 3 percent
leverage ratio already but with U.S. banks being told to go higher,
regulators say their international peers will also come under
pressure to match those levels.
The GHOS also revised another rule, known as the net stable funding
ratio (NSFR) which seeks to ensure that banks have enough funding
available for over one year, to avoid being overly dependent on
shorter-term funding which could dry up in a market crisis, as in
the 2007 credit crunch.
Banks had complained of potential "cliff effects" for lenders if
they could not include funding with maturities of slightly less than
a year in their NSFR calculations.
To get round this, the GHOS agreed on Sunday to create two new
"buckets" so that banks can get some recognition for maturities of
up to six months, and a bit more for 6-12 months.
The changes are likely to ease the burden on deposit-funded banks
but will be slightly tougher on investment banks who prefer
The revised NSFR will be put out to public consultation.
(Reporting by Huw Jones; editing by Ruth
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