The Basel Committee has returned to the contentious question of its leverage-capital standards, confirming that these will indeed go into global effect in 2018 at the three percent on- and off-balance sheet levels included in the 2010 Accord but now with a different measure for exposures than the one finalized thereafter by the Basel Committee in 2014. Basel is also contemplating adding a leverage-capital surcharge for global systemically-important banks (GSIBs) based on this new exposure measurement, which makes all of the Basel leverage rules less onerous. In nations like the U.S. and Switzerland that have higher GSIB leverage ratios, a new Basel surcharge would have little effect but the exposure change could reduce the cost of these requirements, especially in nations where accounting standards now do not recognize netting. Basel intends the leverage rule to be a backstop for risk-based capital (RBC). However in the context of all of Basel’s pending proposals to standardize the RBC requirements, the interaction of leverage and RBC is changing even in the absence of this proposal, resulting in wide variations across nations and banks as to which capital ratio is the binding constraint, especially where stress tests like the U.S. CCAR come into play. The structural and strategic impact of this consultation is thus in part dependent on its cumulative impact in light of the other standards applicable to national banking systems and institutions. In the U.S., the actual amount of leverage capital applied to GSIBs would not rise even if Basel adopts a GSIB leverage surcharge because the U.S. ratios are well above those likely to be adopted by Basel even if it decides on a binding minimum surcharge. However, changes to exposure measures would reduce the U.S. leverage ratio for GSIBs and other large banks if the U.S. agrees to recognize the proposed mitigations to simple exposure measurements.
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