BCBS published a consultative document on revisions to the leverage ratio disclosure requirements to address the leverage ratio window-dressing behavior. BCBS seeks the views of stakeholders on revisions to leverage ratio Pillar 3 disclosure requirements to include, in addition to the current requirements, disclosures of the leverage ratio exposure measure amounts of securities financing transactions, derivatives replacement cost, and central bank reserves calculated using daily averages over the reporting quarter. Comment period on the consultation ends on March 13, 2019.
Heightened volatility in various segments of money markets and derivatives markets around key reference dates (for example, quarter-end dates) has alerted the Basel Committee to potential regulatory arbitrage by banks. A particular concern is "window-dressing," in the form of temporary reductions of transaction volumes in key financial markets around reference dates, resulting in the reporting and public disclosure of elevated leverage ratios. In this regard, BCBS had published a statement in October 2018, in which it indicated that window-dressing by banks is unacceptable, as it undermines the intended policy objectives of the leverage ratio requirement and risks disrupting the operations of financial markets. BCBS proposes that the potential revisions to Pillar 3 disclosure requirements set out in this consultative document be implemented no later than January 01, 2022 and apply to all internationally active banks.
Although the scope of this consultative document is limited to the disclosure of a limited set of exposures, BCBS will continue to monitor trends in banks’ leverage ratio exposures and may consider extending the scope of disclosure requirements based on averages, if warranted to address potential window-dressing behavior identified for other types of exposures. The Committee will also continue to consider whether amendments to leverage ratio Pillar 1 calculation requirements would be appropriate to mitigate window-dressing behavior. The Basel III leverage ratio standard comprises a 3% minimum level that banks must meet at all times, a buffer for global systemically important banks (G-SIBs), and a set of public disclosure requirements. For the purpose of disclosure requirements, banks must report the leverage ratio on a quarter-end basis or, subject to approval by national supervisors, report a measure based on averaging (for example, using an average of exposure amounts based on daily or month-end values).
- Press Release
- Consultation on Leverage Ratio Requirements (PDF)
- Statement on Leverage Ratio Window-Dressing
Comment Due Date: March 13, 2019
Keywords: International, Banking, Leverage Ratio, Window Dressing Behavior, Basel III, Disclosures, Pillar 3, BCBS
Previous ArticlePRA and FCA Issue Statement on Reporting of Private Securitizations
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).