UK FPC Consults On Leverage Ratio

On 11 July 2014, the Bank of England's Financial Policy Committee ("FPC") published a consultation paper on a review of the leverage ratio, an indicator of a firm's solvency. The FPC was requested by HM Treasury to conduct a review of the leverage ratio, including the FPC's 'toolkit' for implementing the framework.

The FPC is seeking views on policy choices determining the role of the leverage ratio in the capital framework for UK firms, including the design of the framework. The main issues considered are: (i) whether certain characteristics in the existing risk-weighted framework should be echoed in the leverage framework - the FPC is considering whether a leverage conservation buffer on top of the minimum leverage ratio should be introduced; (ii) whether an additional leverage ratio should be introduced, which would apply to a different category of firm such as ring-fenced banks or systemically important institutions (or both) whose failure would be most