BCBS Consults on Disclosure Rules for Leverage Ratio Window-Dressing
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).
Related Links
- 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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
OCC Publishes Semiannual Risk Perspective for Fall 2019Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
