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Constancio Says ECB Tests to Use Basel Leverage Standards

The European Central Bank will use the Basel Committee for Banking Supervision’s updated standards on leverage in its bank balance sheet review this year, said ECB Vice President Vitor Constancio.

“We’ll use the leverage ratio as a way of cross-checking, but not in a binding way,” Constancio told reporters in Frankfurt today, referring to the relation of capital to assets. “The final definition, calibration is still missing but nevertheless we will make calculations according to the methodology which is now new.”

Regulators are increasingly focusing on capital as a share of assets, known as the leverage ratio, as well as gauges that rely on the risk banks assign to their business. Last month, the Basel Committee diluted a plan to increase the assets banks must count on their balance sheets, such as derivatives and other investments, after warnings that the rule would penalize low-risk activities and curtail lending.

The Basel Committee’s standards, which aren’t yet legally binding in European Union law, will still force some banks to increase the assets they carry on their balance sheets.

Deutsche Bank AG, Europe’s biggest investment bank by revenue, will see its assets rise by about 200 billion euros ($270.3 billion) under the planned Basel standards, Chief Financial Officer Stefan Krause told analysts on a conference call last month. The bank’s balance sheet would have increased by 400 billion euros to 500 billion euros under the original Basel Committee plans, he said.

Constancio said the requirement of a leverage ratio of 3 percent of assets may change.

The ECB also said today that the euro area’s largest banks will have to show their capital won’t fall below 5.5 percent of risk-weighted assets in tests simulating an economic crisis later this year.

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