ECB Extends Leverage Ratio Relief for Banks Until March 2022

The Capital Requirement Regulation (CRR) allows banking supervisors, after consulting the relevant central bank, to allow banks to exclude central bank exposures from their leverage ratio. ECB mentioned that the 3% leverage ratio requirement will become binding on June 28, 2021. Banks that  decide to exclude central bank exposures must recalibrate this 3% leverage ratio requirement in such a way that only the central bank exposures newly accumulated since the beginning of the pandemic effectively benefit from the leverage ratio relief. This means that only the increase in banks' central bank exposures since end of 2019 would in practice lead to leverage ratio relief; this maintains the level of resilience provided by the leverage ratio before the pandemic. 

Based on the end of December 2020 data of the 39 significant banks already excluding central bank exposures from their leverage ratio, the measure to continue to exclude certain central bank exposures from the leverage ratio would increase headroom over leverage ratio requirement on average by 0.5 percentage point (about EUR 70 billion Tier 1 capital). This is the result of two effects in opposite directions: a continued 0.7 percentage point increase of the leverage ratio due to the exclusion of central bank exposures, partially offset by a 0.2 percentage point increase of the 3% leverage ratio requirement due to the recalibration. Banks that elect to use this extension should nevertheless plan to timely maintain sufficient capital in view of the expiration of the prudential exemption. 

This decision by ECB Banking Supervision came after the Governing Council of ECB confirmed that  exceptional circumstances due to the COVID-19 pandemic continue. The Governing Council of ECB believes that the condition of exceptional circumstances warranting this temporary exclusion from the calculation of banks’ total exposure measure continues to be met for the euro area as a whole. The Governing Council concurs that, on a quarterly basis, the date on which the exceptional circumstances are deemed to have started is December 31, 2019.

Related Links

• Press Release on Leverage Ratio Relief
• Decision on Leverage Ratio Relief (PDF)
• Press Release on Exceptional Circumstances
• FAQs

Keywords: Europe, EU, Banking, COVID-19, Leverage Ratio, Basel, CRR, Regulatory Capital, ECB