GFMA and Other Association Submit Comments to the BCBS on Basel III Leverage Ratio Framework and Disclosure Requirements
20 September 2013
GFMA and other Associations provide comments to the Basel Committee on Bank Supervision (BCBS) responding to the June 2013 Consultative Document issued by the BCBS , Revised Basel III leverage ratio framework and disclosure requirements (Proposed Framework).
The Associations support the BCBS’s efforts to impose a leverage ratio as a supplemental, backstop measure to the risk-based measure. In its current form, however, the Proposed Framework would greatly increase the denominator of the Basel III leverage ratio (the Exposure Measure) by adopting measurement methodologies that the Associations believe would significantly overstate actual economic exposure. If adopted in this form, the Exposure Measure is far more likely to result in the leverage ratio, rather than the risk-based capital ratio, becoming the binding capital measure for a substantial number of banks. Moreover, for banks where the leverage ratio does not become the binding ratio immediately, the very real prospect of it becoming binding in the future or after a stress test will cause these institutions to change their behavior as if it were binding. As a result, institutions will reduce their participation in core financial activities and markets that are critical to the smooth functioning of the financial system.