Basel III: Proposed Revisions To The Leverage Ratio

The Basel Committee on Banking Supervision (the "Committee") has recently issued proposed revisions to the leverage ratio framework building on and amending standards issued in January 2014. It follows feedback from the industry on various aspects of the framework that were perceived not to sufficiently reflect the actual exposures or the allocation of risks associated with exposures. Particular issues concerned the treatment of initial margin collateral provided by cleared clients, limitations on exposure-reducing effects in derivatives trades of cash variation margin (CVM) provided in currencies other than the settlement currency and insufficient recognition of accounting provisions in terms of offsetting exposure values. There are additional clarifications on the treatment of credit derivatives and new rules specifically covering the treatment of "regular-way" purchases and sale of financial assets (typically cash products).