Global banking regulators announced that they have taken a series of steps toward finalizing new leverage and liquidity requirements that are to be imposed as part of the new Basel III capital adequacy regime.
The group that oversees the Basel Committee on Banking Supervision, which is known as the Group of Governors and Heads of Supervision (GHOS), endorsed proposals from the Basel Committee on a common definition of the leverage ratio.
The ratio aims to overcome differences in accounting standards that has hampered cross-border comparison of bank leverage ratios. The group notes that a globally consistent measure of leverage and consistent disclosure standards are “central components” of the reformed regulatory framework for internationally active banks.
The Basel Committee indicates that it will continue to monitor the implementation of the leverage ratio; and, any adjustments to the definition will be completed by 2017, with the requirement to be fully implemented in 2018.
The GHOS also endorsed several proposed changes to liquify rules, including proposed changes to the net stable funding ratio (NSFR), which is another important component of the Basel III framework; and is designed to promote prudent funding structures by banks, particularly to prevent an over-reliance on short-term wholesale funding. It notes that the Basel Committee will soon launch a consultation on the NSFR.
Additionally, the GHOS endorsed the Basel Committee’s proposals regarding minimum requirements for liquidity-related disclosures; and, it endorsed the committee’s intention to publish further guidance on how national regulators can utilize market-based indicators of liquidity within their own frameworks. It also endorsed the committee’s conclusion that the availability of central bank liquidity may be included as part of the liquidity available to banks in times of stress under the liquidity rules. The committee will also release these proposed revisions soon, it says.
“The finalisation of an internationally consistent measure of bank leverage is a significant step towards the full implementation of Basel III. The leverage ratio is an important backstop to the risk-based capital regime and, when coupled with the [liquidity coverage ratio] and NSFR, provides a regulatory framework that should help to ensure that banks are much more resilient to financial shocks than was the case in the past,” said Mario Draghi, chairman of the GHOS and president of the European Central Bank (ECB).
Stefan Ingves, chairman of the Basel Committee and governor of Sveriges Riksbank, added that, “good progress is being made to conclude the ambitious reform agenda, and in ensuring its full and consistent implementation. There is more to be done, but the committee is on track to complete the crisis-related reforms soon and, in doing so, to establish a stronger and more resilient banking system.”
Finally, the GHOS also signed off the Basel Committee’s strategic priorities for the next two years; which, in addition to crisis-related policy reforms, includes deepening its programme of monitoring and assessing the implementation of the reforms; further examining the regulatory framework’s balance between simplicity, comparability and risk sensitivity; and improving effectiveness of supervision. All of these will involve significant work during 2014 and 2015, it notes.