- BOE extends banks' transitional period until end of 2017
- Requirements will apply to firms with $75 billion in deposits
British banks including Barclays Plc and HSBC Holdings Plc gained another year before they’re required to publicly disclose the daily average they use in calculating their leverage ratios, the Bank of England said, extending the transitional period until the end of 2017.
The Prudential Regulation Authority is seeking to prevent banks from gaming the leverage requirements, such as by tweaking calculations to flatter the ratio and creating a false impression of the risks they are carrying as the reporting date approaches, it said in a paper on Monday. Firms will have more time to improve the accuracy and comparability of the so-called best estimates they will have to use in reporting some of their risks, the London-based PRA said.
“The PRA recognizes that the ‘best estimate’ approach does present challenges to the comparability of the averaged leverage ratios across firms and there are difficulties in implementing, in a consistent manner, the disclosure requirement following a 12-month transitional period,” the PRA said. The delay will mean “there is a period where the daily averaged number is being reported to the PRA but not publicly disclosed,” it said.
Leverage ratios are designed to curb banks’ reliance on debt and rein in the tendency to swell balance sheets by setting a standard for how much capital they must hold as a percentage of all assets on their books. The risk-blind ratio will be set at a minimum of 3 percent under rules crafted by the Basel Committee on Banking Supervision.
Bank for International Settlements researchers Ingo Fender and Ulf Lewrick said in the institution’s quarterly review on Sunday that regulators have “considerable room” to raise the Basel III leverage ratio for banks as high as 5 percent from its current level of 3 percent. The 3 percent requirement is a “test” level, they wrote.
The U.S. already imposes a requirement of at least 5 percent on the biggest bank holding companies and Switzerland instructed the two largest lenders, UBS Group AG and Credit Suisse Group AG, to hold capital equal to 5 percent of assets.
The requirements will apply to firms with deposits of at least 50 billion pounds (75 billion), the PRA said. The regulator said it plans to consult “‘soon” on how the leverage requirements will fit in with other initiatives such as the European Union’s minimum requirements for loss-absorbing liabilities, known as MREL.